EUR 120.00 For Business Accounts Only

MOSL: KOTAK MAHINDRA BANK: Healthy business growth; well-positioned in a rising rate cycle (KMB IN, Mkt Cap USD45.4b, CMP INR1826, TP INR2000, 10% Upside, Neutral)

Controlled provisioning helps limit treasury losses

• KMB reported an in line 1QFY23, with standalone PAT up 26% YoY to INR20.7b. This was driven by lower provisions, which offset treasury losses, as PPOP declined (13% miss). Consolidated PAT grew 53% YoY to INR27.6b.
• Loan growth remains healthy, with margin witnessing further expansion. The CASA ratio remains robust at 58.1%.
• Asset quality remains strong. Gross slippages increased to INR14.3b, of which INR7.8b got upgraded during 1QFY23 itself. Thus, net slippages stood at INR6.5b, which, along with healthy recoveries and upgrades, enabled a 10bp/2bp QoQ decline in the GNPA/NNPA ratio. KMB reversed INR650m of COVID-related provisions and now has outstanding COVID-related provisions of INR4.8b (0.2% of loans). We maintain our Neutral rating.

Healthy asset quality; NIM improved by 14bp QoQ to 4.92%

• KMB reported a standalone PAT of INR20.7b, aided by lower provisions as the bank reversed COVID-related provisions of INR650m. Consolidated PAT stood at INR27.6b (up 53% YoY).
• NII grew 19% YoY (in line), led by loan growth of 3% QoQ and 29% YoY, along with a 14bp QoQ expansion in margin to 4.92%. Other income fell 8% YoY, led by a treasury loss. However, core fees grew a healthy 42% YoY.
• OPEX growth stood higher as the bank continues to invest in building a digitally savvy franchise by hiring in tech and other functions. As a result, PPOP fell 4% YoY (13% miss). However, core PPOP grew 18% YoY.
• Loan book grew 3.3% QoQ and 29% YoY, led by healthy traction across segments. The bank reported healthy sequential trends in Home loans, Personal loans, Business loans, Consumer Durable loans, and Credit Cards. Deposits grew 10% YoY and 2% QoQ, while the CASA mix moderated by 260bp QoQ to 58.1%. CASA and TDs (below INR50m) fell to 88% in 1QFY23 v/s 89% in 4QFY22.
• Gross fresh slippages stood at INR14.3b, of which INR7.8b was upgraded in 1QFY23 itself. Hence, net slippages stood at INR6.5b. The GNPA/NNPA ratio improved by 10bp/2bp QoQ to 2.24%/0.62%, aided by higher recoveries and upgrades of INR12.9b. PCR remains healthy at 72.6%. KMB carries outstanding COVID-related provisions of INR4.8b.
• SMA-2 advances fell further to INR1.59b (v/s INR1.86b in 4QFY22). The outstanding restructured portfolio (under COVID-19 and MSME) stood at INR10.8b (0.39% of advances), with the bank holding an additional provision of INR2.21b (10% higher than the regulatory requirement).
• The performance of its subsidiaries: Kotak Prime and Kotak Capital reported a PAT growth of 99% and 21%, while Kotak Securities and Kotak Investments posted an earnings decline of 7% and 11%. Kotak Life reported a PAT of INR2.5b v/s a loss of INR2.4b in 1QFY22.

 

Highlights from the management commentary

• Unsecured Retail loans constitute 7.9% of the overall mix v/s 5.6% in 1QFY22. The management continues to focus on growing this book and will look to increase this mix to early mid-teens.
• Loan mix: Total floating rate book stands at 69%, with EBLR loans at 50%. The fixed rate book, with a duration of less than one-year, stood at 11%.
• Bounce rates remain better than pre-COVID levels.
• Demand resolution remains healthy and is similar to pre-COVID levels.