KMB reported PAT of Rs 14.1 bn (+25% y-o-y, in-line) on account of healthy loan growth, improved margins and lower provisions. NII grew 18% y-o-y to Rs 30.5 bn, as the margin expanded 15bp q-o-q/13bp y-o-y to 4.48%. For FY19, NII/PPoP/PAT grew 18%/17%/19%.
Loan book grew 21% y-o-y
Loan book grew 21% y-o-y, led by strong growth in retail loans and corporate banking (+19% y-o-y), while deposits increased 17% y-o-y (CASA deposits up 21.3% y-o-y). SA deposits continued growing strongly by 22% y-o-y (SA cost of 5.66%). Core deposit mix (CASA + TD < Rs 50 m) stood at 81% of total deposits. CASA mix improved to 52.5% (+180bp q-o-q) .
GNPA/NNPA up sequentially
GNPA/NNPA increased by 8.2%/10.5% q-o-q, resulting in a marginal rise in the GNPL/NNPL ratios to 2.14%/0.75% (+7bp/+4bp), while PCR moderated marginally by 72bp q-o-q to 65.4%.
Life insurance business delivers strong EV growth; other subs showing mixed
Kotak Life reported net profit growth of 21% y-o-y (25% y-o-y growth in EV), while Kotak AMC delivered 92% y-o-y growth. Kotak Prime PAT grew 2.5% y-o-y, while Kotak Securities saw a dip of 17% y-o-y. Consol. PAT grew 14% y-o-y to Rs 20.38 bn.
Other highlights
(i) KMB reported a Tier 1 ratio of 16.9% (CAR of 17.5%). (ii) SMA-2 advances declined to 7bp of loans. (iii) According to Basel III, the exposure towards NBFCs/CRE (ex LRD) has come down to 4.0%/1.7% from 5.1%/1.9% in FY18. (iv) Growth is stagnant in business bank segment.
Valuation view
We cut our FY20/21 consol. PAT estimate by 3% and expect consol. earnings CAGR of 19%. We, thus, project KMB’s FY21 consol. RoA/RoE at 2.1%/13.4%. We continue believing in KMB’s capability to deliver in a challenging environment and appreciate the progress the bank is making in building a strong liability franchise. We expect the bank to maintain traction in loan growth (FY19-21 CAGR of 22%) and gain market share across product segments. Maintain Neutral with a revised TP of `1,450 (3.8x FY21e ABV for the lending business).
Loan growth led by both retail and corporate loans
Loans grew 21% y-o-y (4.7% q-o-q), led by retail loan growth across segments and corporate banking at 19% y-o-y. Retail loans were driven by strong growth in CV loans at 30% y-o-y (+9% q-o-q), while personal loans, credit card and small business grew by 32% y-o-y (+7% q-o-q). Corporate banking grew 19% y-o-y (-2% q-o-q), while business banking growth was muted at -0.3% y-o-y (1% q-o-q) as management was cautious on lending to the SME sector.
Strong traction on CASA continues
SA deposits grew 22% y-o-y/4% q-o-q, while CA deposits grew by a robust 21% y-o-y/23% q-o-q. SA deposits as a proportion of overall deposits stood at 35.3% (+126bp y-o-y).
