Stock corner: ‘Neutral on Kotak Mahindra Bank, stable showing across businesses in Q4

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Published: May 7, 2019 12:58:53 AM

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) . 

Neutral, Kotak Mahindra Bank, Q4 earning,  Life insurance, markets, news, corporate banking, retail loans ‘Neutral on Kotak Mahindra Bank, stable showing across businesses in Q4

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).

 

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