Federal Bank vs Karur Vysya Bank: Which is the bettr investment?

8월 18일

The Bank Nifty BANKNIFTY stands at the 50,500 level, reflecting a decline of approximately 5.3% from its all-time high. When evaluating private banks, HDFC HDFCBANK , Axis AXISBANK , ICICI ICICIBANK , and Kotak Mahindra KOTAKBANK typically emerge as top contenders for investment. However, in the mid to small-cap arena, Federal Bank and Karur Vysya Bank have shown remarkable resilience and performance over the past few months, outpacing the broader banking sector. Let’s delve into some crucial factors that can guide us in determining the most promising investment opportunity at this moment!

Market Capitalization
● Federal Bank FEDERALBNK - ₹ 49,883 Cr.
● Karur Vysya Bank KARURVYSYA - ₹ 17,459 Cr.

Relative Strength


● The chart clearly illustrates that the Bank Nifty has delivered an impressive return on investment of approximately 15% over the past year. However, Federal Bank and Karur Vysya Bank have far surpassed this figure, achieving remarkable returns of around 54% and 82%, respectively. This indicates that these two banks are currently excelling far beyond the overall bank index.

Cost of Liabilities
● The liabilities cost for Karur Vysya Bank is at 4.8%, notably lower than Federal Bank's 5.14%. This indicates that Karur Vysya Bank has a greater ability to secure funds compared to Federal Bank.

CASA Ratio
● The CASA ratio, which measures the proportion of deposits in current and savings accounts to total deposits, is a crucial indicator for banks. A higher CASA ratio signifies a reduced cost of funds, as banks typically do not pay interest on current account deposits, and the interest rates on savings accounts are generally quite low, around 3-4%.
● In this instance, the CASA ratios stand at 30.39% for Karur Vysya Bank and 29.56% for Federal Bank, highlighting Karur Vysya Bank's superior position over Federal Bank.

Non-performing Asset (NPA) Analysis


● Over the past four years, the net non-performing assets (NPA) for these two banks have seen a remarkable decline.
● In the latest quarter, Karur Vysya Bank reports a net NPA of just 0.4, while Federal Bank follows closely with a net NPA of 0.6.

Total Provisions


● Discussing the NPA without considering the overall provisions presents an incomplete picture. Both banks have experienced a notable decline in this crucial factor.
● For Federal Bank, the total provisioning for FY24 is only 196 crore, a stark reduction from 750 crore in FY23. Similarly, Karur Vysya Bank's total provisioning for FY24 stands at 728 crore, down from 1,039 crore in FY23.

Net Interest Margins (NIM)


● Karur Vysya Bank boasts a superior net interest margin (NIM) of 3.75, significantly outpacing the Federal Bank's NIM of 2.87.
● A NIM below 3 is generally viewed as unfavorable for banks. highlighting the strength of Karur Vysya Bank in this key metric.

Advances Growth (%) Analysis
● An increase in advances growth signifies a bank's ability to efficiently provide loans. The 20.4% rise in advances for Federal Bank surpasses the 16.68% growth seen at Karur Vysya Bank, showcasing a more robust lending capability.

Valuation

● PE Ratio
➖Federal Bank's current price-to-earnings (PE) ratio is 12.4, which exceeds its 1-year median PE of 9.0. Compared to the industry average PE of 11.83, this suggests that the stock is not excessively overvalued.
➖On the other hand, Karur Vysya Bank has a current PE of 10.2, which is marginally above its 1-year median PE of 9.8. Given the industry PE of 11.83, this indicates that Karur Vysya Bank is significantly undervalued.
➖When analyzing the PE ratios, it becomes clear that Karur Vysya Bank holds a more advantageous position.

● Intrinsic Value
➖The Federal Bank is currently trading at ₹204, while its intrinsic value stands at ₹228, indicating that the stock is undeniably undervalued at this time.
➖On the other hand, Karur Vysya Bank's market price is ₹217, but with an intrinsic value of only ₹146, it clearly shows that the stock is currently overvalued.

Technical Aspects
● From a technical standpoint, both stocks exhibit a similar pattern and appear to be currently overextended. Any pullbacks could provide a valuable opportunity to take positions.

Conclusion
● Upon evaluating all the key factors, it is evident that Karur Vysya Bank KARURVYSYA is in a more advantageous position than Federal Bank FEDERALBNK ; however, this does not imply that Federal Bank is struggling. Both banks offer promising investment prospects. As the economy grows, a fundamentally strong bank is expected to consistently surpass the overall banking sector.