M&A candidate Karnataka Bank looks undervalued: Prakash Diwan

In a chat with ET Now, Prakash Diwan, Director - Altamount Capital Management, shares his view on the stock/stocks, the expert is positive on post the fourth quarter numbers.

ET Now: What is your view on midcap stocks? Valuations have come off quite a bit. Is there anything, which looks interesting to accumulate?

Prakash Diwan: I had ample time to go through the earnings season. This time, I believe that it has been a pretty long earning season.

Earnings clocked by the banking space have been talked about quite a bit and we see a lot of changes happening in that space. I believe that Karnataka Bank had posted some decent numbers, which unfortunately got overlooked. The bank reported 45 per cent growth in profits and around 12 per cent growth in top line.

The small bank, which is matured enough now into kind of expanding, has 75 new branches this year which is quite phenomenal where nobody is kind of talking about expanding, has added quite a few ATMs.

In fact, their service points have almost gone to about 2700 touch points. That is good for a small bank with Rs 2500-crore market capitalization. It is still got enough headroom to, so even from valuation perspective. EPS for the year gone by (FY15) stood at Rs 24 and our expectation is that the lender will have a very decent growth rate and valuations at just about under five times. Of course, we do not go by PE multiples for banks. That said, even adjusted price to book to value is about 0.7 so these are…
In addition, the lender always gets talked about as an merger and acquisition (M&A) candidate. I am not even factoring that in. On a standalone basis, it is quite undervalued. It has not moved up. You have seen a lot of other banks Lakshmi Vilas and DCB and all do well from the price.