Neutral on

Updated: Jul 20 2013, 06:19am hrs

We maintain neutral rating on Kotak Mahindra Bank due to expensive valuations and assign a 12-month SOTP based target price of R670.

Kotak Mahindra reported a 46% Y-o-Y increase in consolidated net profits to R630 crore. Numbers were ~16% and 8% above our and consensus estimates due to higher trading gains.

The bank stated that they are very comfortable on liquidity, and despite RBIs tightening measures, they were net lenders in money markets in the last few days.

CD and bulk deposits constitute ~14% and ~25% of total deposits, respectively. The bank stated that if short-term rates do not correct in the near term, they would increase the lending rates in order to protect their margins.

The bank added R 240 crore to its gross NPAs (up 28% Q-o-Q). Net NPAs increased by 51% Q-o-Q. One account worth R150 crore in the corporate segment went into CDR, and the bank conservatively classified it under the NPA category. Remaining slippages came in from the CV/CE segment, which led to an increase in retail NPLs. We believe that net NPAs are likely to remain under control at less than 1% in FY14/15e. The company does not see any big risk to its asset quality and guided for 60bps of credit costs in FY14e (compared to 85 bps already reported in Q1FY14).

Both corporate and retail loans have grown at 20% Y-o-Y in Q1FY14. Within retail, the commercial vehicle and construction equipment (CV/CE) portfolio remains under pressure in terms of incremental growth.