Anish Jobalia presented his in-depth investment thesis on KARUR VYSYA BANK (NSE: KARURVYSYA) at Asian Investing Summit 2018.

Thesis summary:

Karur Vysya Bank, based in South India, is a regional bank that started its journey in 1916 in Karur, a textile town in Tamil Nadu. KVB primarily started as a small and medium enterprise (SME) bank. It continues to position itself as a comprehensive player that caters to the needs of SME customers. KVB’s core philosophy of nurturing customers through times “thick and thin” has earned it respect over its hundred-year existence, resulting into a sticky customer base.

The bank has traditionally enjoyed a high average ROA profile of ~1.7%, as observed from 1999 to 2013. ROA has recently shrunk to 0.6% due to high credit costs resulting from exposure to chunky corporate loans.

There has been a management change with the hiring of P. Seshadri, a highly competent CEO. IIM Bangalore alumnus Seshadri is a senior banker with 25+ years of experience at Citibank. In a recent clean-up drive, Seshadri increased the watchlist of stressed assets from INR 650 crores to INR 1200 crores. According to management, this is the tail end of reserving for stressed assets. The bank’s strategy going forward is to granulize the portfolio by shunning large-ticket corporate lending and focusing on low-ticket SME, retail loans, and corporate loans. The incremental slippage ratio and provisions are expected to come down. Credit costs should revert to their long-term average of ~1% across all cycles.

KVB has historically traded at 1-2x price to adjusted book value on a forward basis. It recently traded at INR 100, a multiple of ~1.3x.

Read Anish’s recent article on Karur Vysya Bank.

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About the instructor:

Anish Jobalia was previously associated as a Research Analyst with Jeetay Investments Pvt Ltd, a Mumbai based portfolio management firm with assets under management exceeding US$ 100 mn. Anish worked at Jeetay for nearly 6 years and was principally responsible for identifying, analysing, and executing investments in line with the fund’s value-focused investment strategy. He played an instrumental role in driving the institutionalization of the research process at Jeetay. Anish regularly interacts with CXO level management of listed companies to assess investment opportunities and to understand industry health. He presently manages his own portfolio and is looking to raise funds from investors. Anish completed his Bachelors in Engineering (Electronics and Telecommunication) from Mumbai University in 2007, following which, his passion for equity research led him to pursue an MBA in Accounting and Finance from University of Technology, Sydney.