MOSL: KOTAK MAHINDRA BANK (Buy)-Operating environment improving-Subs performance remains robust

Kotak Mahindra Bank: Operating environment improving; Subs performance remains robust

(KMB IN, Mkt Cap USD30.5b, CMP INR1060, TP INR1220, 15% Upside, Buy)

• Standalone results: PAT grew 20% YoY to INR10.53b (5% miss) in 3QFY18. Operating profit grew 19% YoY, led by 17% YoY growth in NII and continued control on operating expenses.
• Margin contracted another 13bp QoQ to 4.2%, while fee growth stood at a healthy 14% YoY. CASA deposits grew 34% YoY to INR843.9b, of which SA deposits grew 52% YoY (+9% QoQ). However, the CASA ratio declined 110bp QoQ (+470bp YoY) to 46.7%.
• Absolute GNPA declined 2.6% QoQ, while the GNPL ratio improved by 16bp QoQ to 2.31%. PCR (cal.) improved by 419bp QoQ to 53.9%. Restructured loans stood stable at INR670m (4bp), while SMA2 accounts increased to 19bp of loans (INR3.08b) v/s 16bp in the previous quarter.
• Loans grew 23% YoY (+4% QoQ), while deposits increased 21% YoY (+9% QoQ). KMB guided for 20%+ loan growth, as it sees improving trends in the micro environment. Share of core deposits (CASA+less than INR50m retail TD) stood at 75% (77% in 2QFY18).
• Subs performance remains robust: a) KMPL reported PAT of INR1.48b (+11% YoY), while Kotak Securities reported PAT of INR1.54b (+81% YoY). b) Kotak Mahindra Capital, Life Insurance and Asset Management subs also reported strong growth in net profit, driving consolidated net profit to INR16.2b (+28% YoY). c) Asset management business’ average AUM increased 8% QoQ (+46% YoY). d) K-Sec market share came in at 2% v/s 1.9% in 2QFY18.