Lakshmi Vilas Bank (LVB) is a south based private sector bank with major business
(50.2%) concentrated in the state of Tamil Nadu. As of FY16, LVB has a network
of 460 branches and 910 ATMs, with business size of Rs45,250cr. LVB has beefed
up teams with lateral hiring from banks & NBFCs and implemented innovative
large scale technology for long term sustainability.
We believe that scaling up of the liability franchise led by
CASA, higher contribution from other incomes and prudence approach to
alleviate bad loans will drive profitability and propel return ratio (FY18E –
ROE – 12.7% & RoA – 0.72). This can drive further re-rating. At the current market
price, the stock is trading at 1.25x its FY2018E BV of Rs116. We recommend a
BUY rating on the stock, with a target price of Rs174 (1.50x FY2018E BV).
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