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Kotak Mahindra Bank Ltd Quality growth with undeterred focus on risk
CMP Target Potential Upside Market Cap (INR Mn) Recommendation Sector
INR 1182 INR 1461 24% 2,245,253 BUY BFSI
Result highlights
Advances at INR 1849.4 bn grew at 21% yoy led by 28% growth in the retail book and 17% growth in the corporate book. The bank continued
to deliver strong growth in CV and small business/PL/credit card book of 40% and 39% respectively. NII at INR 26.9 bn grew 16% yoy/ 4% qoq.
NIMs (reported) at 4.2% contracted 10 bps qoq on account of pressure from cost of funds which increased ~16 bps qoq (vs. 12 bps qoq
increase in funds yield).
Fee income at INR 10.2 bn continued to exhibit strong growth, up 26% yoy. The bank delivered a PPOP of INR 21 bn, +21% yoy/3% qoq while
simultaneously improving opex/assets ratio (at 2.57% vs 2.66% in Q2FY18 and 2.56% in Q1FY19). Provisioning at INR 3.5 bn includes provision
on investments of INR 1.3 bn and was up 63% yoy/down 25% qoq. Credit costs of 51 bps is lower sequentially owing to low MTM losses as
compared to Q1FY19. PAT at INR 11.4 bn was up 15% yoy/ 11% qoq, translating into ROE of 11.6%. GNPA at INR 40.3 bn was up 3.4% qoq
translating into stress of 2.15%, down 2 bps qoq. NNPA was 0.86%, flat qoq and PCR stands at 62.8% (+196 bps qoq). CAR stands at 18%. The
bank continued to deliver strong growth while improving profitability and ensuring stress reduction for the 6th consecutive quarter.
Shares outs (Mn) 1907 Particulars (INR Mn) FY15 FY16 FY17 FY18E FY19E FY20E
EquityCap (INR Mn) 9536 NII 97.2 163.8 177.0 197.5 255.5 320.8
Mkt Cap (INR Mn) 2245253 PPOP 30.0 40.4 59.8 71.6 96.3 120.5
52 Wk H/L (INR) 1424/983
PAT 18.7 20.9 34.1 40.8 54.6 68.4
Volume Avg (3m K) 2981
Face Value (INR) EPS (₹) 24.2 11.4 18.5 21.4 28.6 35.9
5
Bloomberg Code KMB IN BVPS (₹) 183.1 130.6 150.0 196.7 224.2 258.6
Source: Company, KRChoksey Research
SHARE PRICE PERFORMANCE
Delivering growth while maintaining stringent risk framework
300 The bank delivered a loan growth of 18% yoy at INR 2221.7 bn on a consolidated basis vs. a
growth of 21% yoy at INR 1849.4 bn on a standalone basis mainly due to low growth in car
finance segment owing to intense competition. On a standalone basis, retail book continued to
200 grow at higher rate of 28% vs 17% growth in the Corporate book. Retail book stands at INR 781.7
bn vs INR 1067.7 bn of Corporate book. The mix of retail and corporate book stands at 42:58 vs
41:59 as on Q1FY19. The bank has guided for an advances growth of >20%.
100 CV/CE segment book at INR 170.5 bn continued to grow strongly at 40% yoy/6% qoq. Business
banking at INR 185.8 bn registered yet another quarter of muted growth at 3% yoy/3% qoq as
management stays cautious on this segment and would like to wait out another quarter
0 because taking a call on growing the portfolio. Home loans/LAP at INR 360.6 bn grew 23%
yoy/6% qoq while small business/PL/CC continued to grow at a higher rate of 39% yoy/11% qoq.
Mar-16
Jan-17
Apr-18
Oct-15
Aug-16
Jun-17
Nov-17
Sep-18
Recent foray into consumer durables and two-wheeler financing re-iterate the bank’s strong
focus on retail. The bank is also open to acquiring portfolios (of NBFCs) amidst the current
Kotak Mahindra Bank Ltd Sensex liquidity crisis should it meet the bank’s risk metrics.
MARKET INFO The bank has reduced its exposure to NBFCs by 50 bps yoy to 5.2% in Q2FY19 and to CRE from by
60 bps yoy to 3.1% in Q2FY19. The bank is expected to stay cautious in both these segments for
SENSEX 34034 some time until stabilization returns.
NIFTY 10225 Overall the bank feels it is well protected from any adverse macro condition given its focus on
risk management. For FY19-20, we are factoring in advances CAGR of 25% on standalone basis.
Cost of funds (%) 5.9% 5.2% 5.3% 5.2% 5.3% 5.2% 5.3% 5.4%
NIM (%) (calc.) 4.4% 4.4% 4.3% 4.2% 4.1% 4.2% 4.0% 4.0%
Asset quality
Gross NPA 31,779 35,786 37,266 38,142 37,150 38,254 38,995 40,337
Net NPA 13,791 17,181 17,779 19,188 17,280 16,651 15,271 15,008
GNPA (%) 2.4% 2.6% 2.6% 2.5% 2.3% 2.2% 2.2% 2.2%
NNPA (%) 1.1% 1.3% 1.3% 1.3% 1.1% 1.0% 0.9% 0.9%
PCR (%) 56.6% 52.0% 52.3% 49.7% 53.5% 56.5% 60.8% 62.8%
Credit costs (%) 0.4% 0.5% 0.4% 0.4% 0.4% 0.5% 0.7% 0.5%
Key ratios
Cost to income ratio (%) 48.4% 46.2% 49.4% 47.2% 47.0% 45.9% 45.8% 46.2%
C/D ratio (%) 86.5% 86.4% 87.1% 92.1% 88.0% 88.1% 93.2% 89.9%
SA (%) 16.2% 17.6% 17.0% 15.5% 14.3% 16.7% 15.1% 15.0%
CA (%) 25.8% 26.4% 26.9% 32.3% 32.3% 34.0% 35.1% 35.3%
CASA (%) 42.0% 44.0% 43.9% 47.8% 46.7% 50.8% 50.3% 50.2%
RoA (%) 1.8% 1.9% 1.7% 1.7% 1.7% 1.8% 1.5% 1.6%
Leverage (x) 7.6 7.7 7.1 6.7 6.8 7.0 7.1 7.1
RoE (%) 13.5% 14.4% 11.8% 11.4% 11.8% 12.2% 10.8% 11.6%
CRAR (%) 16.0% 16.8% 19.2% 18.4% 17.1% 18.2% 18.3% 18.0%
Loan mix (%) - standalone
Corporate Banking 32.9% 30.6% 32.3% 32.1% 31.4% 30.7% 32.6% 31.4%
CV/CE 7.5% 8.0% 8.0% 8.0% 8.3% 9.0% 9.1% 9.2%
Agriculture Division 12.8% 13.9% 13.0% 12.9% 12.9% 13.5% 12.0% 12.1%
Business Banking 12.9% 13.1% 12.3% 11.9% 11.3% 10.8% 10.2% 10.0%
Home Loans and LAP 19.4% 19.2% 19.3% 19.3% 19.5% 19.1% 19.2% 19.5%
Small Business, PL & Credit
12.2% 12.8% 12.8% 13.7% 14.4% 14.8% 14.8% 15.7%
Cards
Others 2.4% 2.3% 2.2% 2.1% 2.2% 2.1% 2.1% 2.0%
Advances growth (yoy) (%) 12.1% 14.7% 17.9% 21.1% 23.1% 24.7% 24.2% 21.2%
Source: Company, KRChoksey Research
Kotak Mahindra Investments Q2FY19 Q2FY18 Q1FY19 YoY (%) QoQ (%) FY18 FY17
NII 610 760 720 -19.7% -15.3% 3,040 2,700
Other income 240 240 160 0.0% 50.0% 1220 810
Total income 850 1,000 880 -15.0% -3.4% 4,260 3,510
PBT 700 840 740 -16.7% -5.4% 3,670 2,900
PAT 450 550 480 -18.2% -6.3% 2,450 1,960
CAR (%) 20.7% - 19.3%
ROA (%) - annualized 2.0% - 2.2%
Loan book 79,550 72,300 77,050 10.0% 3.2% 79,000 70,000
Net NPA (%) 0.04% 0.06% 0.00% 0.0% 0.1%
Source: Company, KRChoksey Research
Kotak Securities Q2FY19 Q2FY18 Q1FY19 YoY (%) QoQ (%) FY18 FY17
Total income 4,070 3,660 4,150 11.2% -1.9% 16,550 11,840
PBT 1,690 1,770 1,960 -4.5% -13.8% 7,960 5,430
PAT 1,120 1180 1,300 -5.1% -13.8% 5,310 3,610
Market share (%) 2.5% 1.9% 1.7% 1.9% 2.2%
Source: Company, KRChoksey Research
Kotak Mahindra Life Insurance Q2FY19 Q2FY18 Q1FY19 YoY (%) QoQ (%) FY18 FY17
New business premium 8,240 6,420 6,590 28.3% 25.0% 34,040 22,780
Total premium 17,180 13,080 1,18,80 31.3% 44.6% 65,990 51,400
PAT 1270 1000 1170 27.0% 8.5% 4,130 3,030
Solvency (x) 3.10 3.08 3.11 3.1 3.0
Source: Company, KRChoksey Research
Kotak Mahindra Capital Company Q2FY19 Q2FY18 Q1FY19 YoY (%) QoQ (%) FY18 FY17
Total income 430 150 560 186.7% -23.2% 1,810 1,360
PBT 210 -20 360 -1150.0% -41.7% 1020 610
PAT 140 -10 250 -1500.0% -44.0% 650 460
Source: Company, KRChoksey Research
Kotak Mahindra AMC Q2FY19 Q2FY18 Q1FY19 YoY (%) QoQ (%) FY18 FY17
PBT 790 340 770 132.4% 2.6% 1700 840
PAT 520 230 510 126.1% 2.0% 1150 560
Average AUM 13,55,080 11,08,320 12,85,660 22.3% 5.4% 11,53,990 7,70,910
Source: Company, KRChoksey Research
Intrinsic value
Entity Valuation methodology Holding
per share (INR)
FY20E
KMB - Standalone banking business / Parent 4.8x FY20E ABV 100.0% 1,178
Kotak Prime 1.5x FY20E BV 100.0% 48
Kotak Life Insurance 3x FY20E GWP 100.0% 165
Kotak Securities 15x FY20E EPS 100.0% 64
Kotak Capital 15x FY20E EPS 100.0% 7
Kotak AMC 5% FY20E AAUM 100.0% 59
Others 10
Holding co. discount (%) 20%
Value of subs (INR per share) 283
Value of total (INR per share) 1,461
CMP (INR) 1,182
Upside (%) 24%
SOURCES OF FUNDS
Other liabilities & provisions 48,580 86,790 84,507 96,521 1,01,229 1,25,465
TOTAL LIABILITIES & EQUITY 10,60,121 19,22,598 21,45,900 26,49,332 32,36,479 39,86,167
USES OF FUNDS
Cash and cash equivalent 62,624 1,08,797 2,25,720 1,96,201 2,31,758 2,89,698
Fixed & other assets 31,679 1,14,546 1,08,616 1,10,329 1,17,473 1,23,495
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