KARNATAKA BANK- Results Update

KARNATAKA BANK has published results for the quarter ended 30.06.2015. Snapshot of the results is as under

                                                       (Rs in Crores)

Parameters	Quarter ended 30.06.2014	Quarter ended 30.06.2015	Variation (+/-)
Operating Profit	188	239	+27%
Provision for NPA	56	116	+107%
Tax Expenses	44	14	-68%
Net Profit from operations	88	109	+24%
Extraordinary Income	33	-	-100%
Reported Net Profit	121	109	10%

Operating Profit and Net Profit from operations increased, however reported Net Profit was 10% lower.

Reason for lower reported Net Profit- Previous year bank was booked extraordinary gain of Rs.33 Crores in June 14 quarter, which was NIL in June 15 quarter. Bank has also made higher provision for NPA. In June 14 quarter bank has booked profit of 44 Crores from Treasury operation, but in June 15 quarter is has booked loss of Rs.5 crores from Treasury operation, because increase in yield on bonds.

Position of Non Performing Assets (NPA)

                                                           (Rs in Crores)

Parameters	Quarter ended 30.06.2014	Quarter ended 30.06.2015	Variation (+/-)
Total Advances	28837	31351	+8.72%
Gross NPA	999	1034	+3.50%
Provision for NPA	318	395	+24.21%
Net NPA	681	639	-6.17%
Gross NPA in %	3.43	3.26	-17 points
Net NPA in %	2.37	2.05	-32 points

In comparison of increase in Total Advances of 8.72%, Gross NPA increased 3.50% only. Due to higher provision made for NPA, Net NPA decreased 6.17%. In percent terms Net NPA decreased 32 points which is in the line of guidance given by the bank to reduce Net NPA below 1% by March 2016. If same trend will continue bank will able to reduce 3X0.32= 0.96 points Net NPA in next three quarters. Bank is also aggressive to sell NPA to ARCs. Bank has sold 50 Crores NPA to ARC in June 15 quarter and It is expected that bank will sell further 300 Crores NPA to ARCs by March 16. In view of higher Total Advances target of Rs.37500 Crores as on 31.03.2016, I believe that bank will able to bring down Net NPA below 1% by March 2016.

Why KARNATAKA BANK will perform?

a)    It is lowest valued Private Sector Bank.

b)    Its management is looking serious about bring down Net NPA below 1% by March 16.

c)    After decrease in Net NPA, its share prices will get rerated by market.

d)  Due to lower crude prices in next one year, CPI will below 6%, well within RBI expectations. Therefore, there is a scope for further rate cut by RBI.

e) After Rate cut Bond prices will fall and bank will book profit from Treasury operation.

Disclaimer: I am not a research analyst. Please take own decision after read the results, annual reports.