We rate Kotak Mahindra Bank Ltd (KMB) Ďneutralí, but cut our target price to R762 (R785 earlier). We cut our earnings estimate by 9-14% (lower growth, higher credit charges and bond pain).
It is a stock we have found safe, seldom sorry, but not super exciting. Our target price is based on our valuation of KMB's different businesses through the sum-of-the-parts methodology. This values the banking business at R546 per share, the vehicle loan financing business at R105, the investment banking and broking business at R42, the insurance subsidiary at R19 and R50 to the AMC business.
We are still pretty cautious on KMB. The bank had ó post 1Q ó turned the most cautious among Indiaís private banks. We met with management. It still sees things the same way (maybe a tad more cautious), seeing growth opportunities (albeit with return trade-offs) with the intent to stay with its distribution expansion plans. The company continues to play it safe.
KMB is sticking to its Ďabout 15%í loan growth guidance. It sees growth opportunities, but often without commensurate returns, the tough spots being CVís and mid-market corporates (the broader market, and itself too) and believes if GDP manages 5%, the asset cycle should mend in 12 months.
There is still some decent return/growth, but KMB is unlikely to chase it aggressively. The 15% appears more an indicative number, not a hard target.