Shares of Karnataka Bank Ltd witnessed a volatile trading session on Friday as the stock surged to touch a new 52-week high, only to retreat from its peak and close lower. The private lender’s stock initially soared by 3.73 per cent to reach a high of Rs 223.75. However, the gains were short-lived, and the stock eventually settled 0.60 per cent lower at Rs 214.40, marking a slight dip from the previous close of Rs 215.70. This oscillation came after a year of remarkable growth, during which the multibagger stock had recorded an impressive gain of nearly 200 per cent.
The optimism surrounding Karnataka Bank was fueled by its robust performance in the first quarter of the fiscal year 2023-24. The bank reported a net profit of Rs 370.70 crore for the quarter ending June 30, 2023, a staggering year-on-year growth of 224.66 per cent compared to Rs 114.18 crore in the same period of the previous fiscal year. In addition to the impressive profit figures, the bank’s loan book quality showed signs of improvement, with the gross non-performing assets (NPAs) decreasing from 4.03 per cent in the year-ago period to 3.68 per cent in Q1 FY24. Similarly, net NPAs also exhibited a decline from 2.16 per cent to 1.43 per cent during the same period.
The upward trajectory of Karnataka Bank shares was accompanied by an optimistic outlook from Axis Securities, a leading domestic brokerage firm. Axis Securities issued a ‘Buy’ recommendation for the bank’s shares, projecting a target price of Rs 250 within a span of 12 to 18 months. The brokerage highlighted the bank’s strategic initiatives, noting that the management was in the process of centralizing processes to enhance operational and technological capacities. Additionally, the bank was expanding its sales teams beyond its traditional branch setup. The establishment of a digital and analytical factory in Bengaluru was also emphasized, which is expected to facilitate cross-selling and upselling to the bank’s vast customer base of 1.30 crore.
The bank’s management expressed confidence in achieving substantial advances by the end of FY24, with projections ranging between Rs 73,000 crore and Rs 75,000 crore. Axis Securities elaborated that Karnataka Bank was eyeing a larger goal of doubling its advances to a remarkable Rs 1 lakh crore in the next 3 to 3.5 years. This ambitious growth plan is expected to be supported by a healthy deposit expansion of 10-12 per cent year-on-year. The bank’s focus on retail loans, particularly gold loans and home loans, was identified as a significant driver of this growth strategy.
While Axis Securities expressed overall optimism, they did highlight potential challenges in the coming quarters. The brokerage acknowledged that while the cost of funds was likely to increase, new acquisitions in the loan book could help offset this impact, maintaining the bank’s net interest margin in the range of 3.50 per cent to 3.70 per cent. The brokerage forecasted that the margins would hover around 3.55-3.65 per cent for FY24-25E. Furthermore, Axis Securities anticipated that slippages would remain at current levels, resulting in an expected NPA of 1.20 per cent for FY24 and maintaining a stable credit cost for the bank.
