MOSL: KOTAK MAHINDRA BANK (Buy)-Strong all-around performance-merger synergies yielding results

​KOTAK MAHINDRA Bank: Strong all-around performance; merger synergies yielding results

(KMB IN, Mkt Cap USD24.9b, CMP INR915, TP INR1050, 15% Upside, Buy)

• Standalone results: PAT grew 40% YoY to INR9.8b (10% beat). Strong core operating profit (+31% YoY), led by healthy NII growth (16% YoY; 10bp NIM improvement to 4.6%), acceleration in fee income (+24% YoY) and controlled opex growth (+9% YoY), was the key highlight. Absolute GNPAs increased 13% QoQ on a low base; largely stable in % terms at 2.6%.
  
• 4QFY17 loan growth picked up from 10-12% in the past quarters to 15% YoY. Sequential loan growth of 5% was led by robust growth in CV (+12% QoQ, 38% YoY), pick-up in business loan (+8% QoQ) and unsecured loan products (+10% QoQ). Management guided for 20%+ loan growth in FY18.
  
• Other highlights: a) CASA ratio improved 600bp in FY17 to 44% driven by robust SA growth of 41% YoY. Benefit received in cost of funds drove NIMs higher by ~30bp over FY16; b) SMA2 declined 9bp QoQ to 10bp, OSRL fell to 7bp (v/s 11bp in 3Q).
  
• Other businesses: a) Profitability at its capital market businesses improved to INR1.3b (+94% YoY), led by better profitability of K-Sec (1.4x increase to INR1.2b); b) K-Sec market share remained stable at 2.2%; c) overall AUM increased 6% QoQ (+38% YoY), led by strong inflows in equity AUM of 52% QoQ (+98% YoY).