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 USD20.0b, CMP INR980, TP INR1153, 18% Upside, Buy)

• Standalone results: PAT grew 30% YoY to INR9.1b (in-line). Core operating profit grew strongly by 30% YoY, led by healthy NII growth (17% YoY; NIMs strong at 4.5%), acceleration in fee income (+43% YoY) and pristine asset quality (stable GNPAs at 2.6%). KMB holds more than requisite provisioning in relation to its exposure of INR2.36b to the 12 accounts identified by the RBI for bankruptcy proceedings under NCLT (four accounts inherited from ING Vysya Bank). Loan growth came in at 18% YoY (+6% QoQ; +15% in 4QFY17), led by robust growth in CV (+6% QoQ, 35% YoY), corporate banking (+21/8% YoY/QoQ) and unsecured loans (+24/5% YoY/QoQ).
• Other highlights: a) CASA ratio remained stable QoQ at 44%, despite moderation in CA deposits, led by robust SA mobilization (+44/6% YoY/QoQ). b) SMA2 increased 11bp QoQ to 0.21%; OSRL fell 21% to 6bp.
• Other businesses: a) Profitability at its capital market business improved to INR1.3b (+57% YoY), led by 108% YoY PAT growth of K-Sec to INR1.25b. b) K-Sec market share declined 30bp QoQ to 1.9%. c) Overall AUM increased 8% QoQ (+37% YoY), led by strong inflows in equity AUM (+92% YoY).