EUR 120.00 For Business Accounts Only

MOSL: KOTAK MAHINDRA BANK (Neutral)-Loan growth moderates reflecting weak macro

(KMB IN, Mkt Cap USD43.5b, CMP INR1618, TP INR1625, Neutral)

Slippages stay elevated; PCR remains stable
** KMB's third-quarter result mirrored overall slowdown in the economy, which led to moderation in loan growth and elevated slippage trajectory. Overall operating performance was healthy with PPoP increasing by 23% YoY, despite the bank making INR2b provisions toward pension obligations.

** We cut our EPS estimate for FY21/22 by 4%/7%, primarily as we factor in lower loan growth assumption. Maintain Neutral.

Loan growth moderates; higher provisions drag earnings
** Standalone PAT increased 24% YoY to ~INR16b (4% miss v/s our estimate of INR16.6b) due to higher provisions of INR4.4b (our estimate: INR3.8b).

** NII grew ~17% YoY to INR34.3b (2% miss), impacted by moderate loan growth; however, margins improved 8bp QoQ to 4.7%. Opex increased 21% YoY to INR23.8b, led by one-off of INR2b toward pension obligations. Thus, the C/I ratio came in at 49.9% v/s 45.2% in 2Q.

** Loan book grew ~10% YoY to INR2.2t, reflecting the slowdown in the business banking/corporate banking and CV/CE portfolios. Deposits growth moderated to 12% YoY to INR2.4t, albeit term deposits grew by 5% YoY. However, CASA grew at ~19% YoY (mix thus improved 10bp QoQ to 53.7%).

** Asset quality deteriorated, with GNPL/NNPL increasing by ~8%/6% QoQ led by a few corporate chunky accounts, unsecured and CV/CE segments. PCR ratio improved 42bp QoQ to ~64%. SMA-2 advances stood at INR2.7b (13bp of loans v/s 20bp in 2QFY20).

** Subsidiaries reported a strong performance, with PAT up 35% YoY for Kotak Prime, 29% YoY for Kotak Securities and 20% YoY for the AMC business.