This bank stock has zoomed over 50% in 3 days on robust Q2 results

Karnataka Bank surged 19% to Rs 143 in the intra-day trade on Friday. It was trading at its highest level since February 2018

Shares of Karnataka Bank hit a multi-year high of Rs 143 as they surged 19 per cent on the BSE in Friday's intra-day trade, in an otherwise range-bound market, amid heavy volumes. In the past three trading days, the stock of the private sector bank has zoomed 52 per cent after it posted a record quarterly net profit of Rs 411 crore for the quarter ended September 2022 (Q2FY22). The net profit grew by 228 per cent compared to the net profit of Rs 125 crore in Q2FY22.

The bank said the significant jump in net profit was mainly because of improved earnings, improved asset quality, healthy growth of advances, cost containment, and efficiency enhancement among others.

At 01:49 PM, Karnataka Bank was trading 11.5 per cent higher at Rs 134.35, as compared to 0.18 per cent decline in the S&P BSE Sensex. The stock was quoting at its highest level since February 2018. Average trading volumes on the counter jumped over six-fold today.  A combined 52.51 million shares had changed hands on the NSE and BSE till the time of writing of this report.

For Q2FY23, Karnataka Bank's net interest income increased by 26 per cent year-on-year (YoY) to Rs 803 crore from Rs 637 crore in Q2FY22. The net interest margin improved to 3.56 per cent from 3.15 per cent in the year-ago quarter.

The bank's asset quality improved further as gross non-performing assets (GNPAs) ratio dropped 67 basis points (bps) on a sequential basis to 3.36 per cent at the end of September quarter. Net NPAs ratio dropped 44 bps sequentially to 1.72 per cent. About a year back, the GNPA was at 4.52 per cent, and NNPA was at 2.85 per cent.

"A steep rise in margins and negative provisions led to Karnataka Bank’s Q2 strong profitability, with its RoA at 1.7 per cent. With most pandemic- related stress already recognised/re-structured, the focus now shifts toward growth," analysts at Anand Rathi Share and Stock Brokers said in a result update.

Key positives were strong traction in retail loans, moderation of slippages, and strong margin improvement. With credit growth picking up, and moderating credit costs, earnings are expected to normalise in the medium term, the brokerage firm said. The stock, however, is trading above its target price of Rs 140 per share.