Kotak Mahindra Bank’s ING Vysya Bank integration working well, loan growth to pick up: Nomura

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Published: January 28, 2017 3:37:18 AM

Kotak Bank’s ING Vysya Bank integration has worked well from a cost perspective (cost income lower than pre-merger levels) and liability franchise of the combined entity is now getting comparable to larger peers (42% in Q3FY17).

Margins came in at 4.49% up 2bps q/q and 15bps y/y. Management had guided to a consolidated margin range of 4.0-4.25% band and they have consistently delivered better largely due to better than expected CASA mobilisation. (Reuters)Margins came in at 4.49% up 2bps q/q and 15bps y/y. Management had guided to a consolidated margin range of 4.0-4.25% band and they have consistently delivered better largely due to better than expected CASA mobilisation. (Reuters)

Kotak Bank’s ING Vysya Bank integration has worked well from a cost perspective (cost income lower than pre-merger levels) and liability franchise of the combined entity is now getting comparable to larger peers (42% in Q3FY17). Growth momentum lagged expectations, but Kotak is finally delivering on core fee growth and we expect loan growth to pick up to +20% as the ING integration and demonetisation impact is now behind. With earnings CAGR of 27% expected over FY17-19F we remain positive on Kotak bank. Our TP of R840 implies ~25x Sep-18 P/E which adequately captures in the strong earnings compounding.

Margins came in at 4.49% up 2bps q/q and 15bps y/y. Management had guided to a consolidated margin range of 4.0-4.25% band and they have consistently delivered better largely due to better than expected CASA mobilisation.

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After the ING Vysya Bank merger, the CASA ratio improved by 700-800bps, aiding margin improvement. While asset yields longer term could have a downward bias, Kotak still continues to pay 5.5% on its SA deposits and any reduction there could help offset NIM pressures.

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