Q4FY15 standalone earnings at R527 crore (+29% y-oy-) were above our estimates due to higher core fee income. Other key positives were strong traction in low cost deposits, healthy growth in corporate loans, followed by retail loans and stable asset quality.
Loan growth picked up pace, improving to 25% y-o-y, driven by personal and corporate loans. CV/CE book remained sluggish, shrinking further by 4% y-o-y. The bank also saw strong traction on CASA with 45% y-o-y growth and CASA share improving to 36.4% of deposits.
Asset quality improved, with GNPL ratio remaining stable at 1.85% while credit costs improved by 16bps q-o-q to 38bps. Restructured book remained stable at 0.24%. Tier-1 CAR remained healthy at 16.2%.
KMB formally merged ING Vysya Bank (IVB) in its fold from April 1, 2015. Bank is targeting to fully integrate IVB’s operations by FY16-end. We continue to expect it to be a tough year for KMB as it focuses on executing the integration. However, synergies should flow in over FY17e and FY18e as KMB cross-sells its product suit to IVB customers, while KMB benefits from IVB’s expertise in the SME space. Overall, we expect that over FY16-18e, KMB should be able to revert to its sustainable RoA of 1.9% from 1.6%.
We retain hold rating with a revised target price of R1,436 from R1,360 earlier.