Q1FY19 result highlights
Valuation and view
While earnings growth of 12% looks low for a stock like Kotak that trades at a premium to the sector, PPOP growth of 27% is still healthy relative to other banks and asset quality remains superior. As such we remain Overweight on the stock. There are only a few banks with high standards of corporate governance, excellent risk management practices and superior asset quality and Kotak is one of them. With dearth of banks having good asset quality and corporate governance becoming an important investment theme, we believe Kotak’s valuation premium to the sector could expand. We are revising our target multiple on the core bank to 4.8x from 4.2x and revising our TP to Rs1,500. Kotak continues to be a valuable banking franchise for the long term. However the stock could consolidate in the short term because it rallied strongly on the back of better than expected 4Q18, while 1Q PAT was below expectations. Mr Uday Kotak warned that overvaluation of collateral for SMEs is a risk that could play out in a big way for banks and NBFCs. Kotak Bank has taken corrective measures to address this risk.
Kotak Mahindra Bank is principally engaged in commercial banking activities. Co.'s services are provided through branch banking, telephone banking, internet banking, mobile banking, direct pay services, payment gateway for online shopping, a global debit card, a prepaid spending card and facility to transfer of funds to all Visa debit and credit cards in India. As of Mar 31 2007, Co.'s total assets and deposits was IRs286,308,094,000 and IRs96,609,722,000 respectively. In additions, Co. had 105 branches and 135 ATMs in 69 locations throughout India.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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