Rebound in NIM, better loan growth led to bottom line vs. JEFe. Core-PPOP beat at consol-ex insurance & bank (17% & 10% vs. JEFe). Loan growth accelerated to 15.4% (consol) and 14.7% (standalone) – guidance of 20% in FY18E. Asset quality worsened marginally as ex-IVBL was recognised as NPL. Raise our earnings post a stronger quarter, rollover earnings to Mar’18 for a PT of Rs 930.
Loan growth improves, CASA surprises. Bank loan growth accelerated to 14.7% y-o-y from 12.1% y-o-y in Q3FY17, bolstered by CV/CE (~8% share, +~45% y-o-y) & corporate (~31% share, +~19% y-o-y) while business banking (~13% share) under performed. Consol book grew 15.4% y-o-y. CASA ratio improved to 44% from 42.0% in Q3FY17. Savings deposit growth continues to be very strong and current deposit was helped by IPOs floats.
Fee drove core PPOP improvement. Consol fee grew 36.9% y-o-y driven by strong performance of mutual fund & life insurance sales. Overall, non-interest income grew 65.8% y-o-y, boosted by strong positive swing in investment gains related to insurance.
Core fee income in the banking entity grew 24.1% y-o-y. For the banking entity, GNPL inched up 17bp q-o-q to 2.59%. Total stressed loans (NNPL + standard restructured) increased q-o-q both for the bank (2.67% vs. 2.54%) and consol (1.15% versus 1.01%). The slippage ratio at consolidated level was 1.7% in Q4 and 1.33% for FY17 as the bank recognised ex-IVBL stressed assets as NPLs.
Change in estimates. We increase consolidated estimates by 2% and 4.3% for FY18/19E respectively on the back of better fee income and small upgrade to NIM while keeping credit costs flat at 49bps.
We also increase standalone (bank) estimates by 9.8% and 12% for FY18/19E driven largely by lower expense ratio offsetting a marginally lower NIM while forecasting a flat credit cost of 44bps.
We are not as sanguine as management. (20% forecast) on loan growth in FY18E (GST impact) and bake in ~17%/16% on standalone/consol estimates. This results in an EPS CAGR of 19% (consolidated) and 20.8% (standalone) over FY17-20E. We expect consolidated RoA/RoE to be 2%/15.3% by FY20E.
KMB trades at 4.5x Mar’17 adj. BV and 29.8x EPS Mar’18E. At our PT of Rs 930 (roll fwd by a qtr), we value KMB at 4x Mar’18E adj. BV and 25.2x EPS Mar’19E. This compares to 5-year average of 3.9x BV and 23x EPS. Downside – weaker growth/asset quality, valuation compression. Upside – stronger loan growth, lower credit costs.