Karnataka Bank - Fundamental Analysis | Intrinsic Value Calculation

In this post, let's analyse the basic parameters of Karnataka Bank. As we know already, estimating a financial company is the most difficult part as there may be many hidden factors involved. But at the best, we check a few parameters that will check the health of the organization.

To make the valuation more defensive, we consider following conditions.

1. Calculate the income after tax averaged out for the past 4 years. The higher the number of years, the better.

Earnings calculation
Income from operations	6,907
- Expenses	5,547
Income before tax	1,360
- Tax	462
Income after tax	898
+ Depreciation and Amortization
+ 25% of Selling expense	0
- Maintanence Capital expenditure
Distributable cash flow	898

2. Regarding the free cash flow calculation, we use only the financial assets in hand for the Bank namely, Cash and cash equivalents, Investments and other bank balance.

3. To calculate the risk the bank poses to non performing assets, we consider following deductions from the cash available in hand.

    a. 5% of total Borrowings

    b. 5% of total Debt securities

    c. 10% of the total advances given by the company

    d. 10% of the Deposits in hand with the bank

Excess Cash Calculation
+ Fixed financial assets
	Investments
	Other financial assets
+ Current financial assets
	Other financial assets
	Cash and cash eq	3,411
	Other Bank balance	198
	Investments	13,646
- Total debt
	Borrowings	3,175
	NPA	8,001
	Deposits reduction	10,268
	Total	-4,189

So, when we calculate the capital needed at 7% cost of capital to earn the averaged out profit after tax + the free cash flow available in hand, we can arrive at an enterprise value for the bank. When we divide this value by the total number of shares in hand, we get intrinsic value of South Indian Bank.

Investment needed @	Capital needed	+ excess cash	Per share value
7.50%	11,968	7,779	275.28

To check the intrinsic value and complete fundamental analysis, please see the video below

https://youtu.be/EmcGUXBAQc4