Kotak Mahindra Bank Ltd. share price target

Kotak Mahindra Bank (KMB) reported a strong quarter with lower provisions and higher treasury income boosting earnings, even as core PPOP grew 19% YoY. The bank reported an uptick in fee income and margins too expanded 12bp QoQ, while loan growth stood flat. On the asset quality front, slippages stood lower (partially aided by the SC order), driving sequential improvement in asset quality ratios, while PCR increased sharply...

Kotak recorded a marginal improvement of 1.6% YoY in interest income to Rs. 8,422cr in Q1FY21. Although the months of April and May had negligible collections, the company had strengthened its collections teams by moving key leadership and sales teams to collections, thus witnessing improvements in the months of June and July. Despite having a flat to negative loan growth, Net-interest income registered a healthy growth of 15.9% YoY to Rs. 4,793cr with NIM remaining flat YoY at 4.44% in the quarter. Non-interest income comprising of fees and treasury related services was also up 1.6% YoY to Rs. 3,901cr. The company has decided to increase its provisions...

Consolidated PAT was at | 1853 crore, down 4% YoY. Overall performance of subsidiaries stayed healthy with Kotak Life Insurance reporting profitability at | 161 crore, up 20.1% YoY. Kotak Securities PAT healthy | 169 crore, up 53.6% YoY. Kotak Prime, non-banking arm, de-grew 55.5%...

Kotak Mahindra (KMB) reported steady performance amidst Covid-19 pandemic with NII up 18/5% YoY/QoQ even as loan growth was muted (down 7% QoQ) and NIM moderation at 4.4% (down 9bps YoY). Deposit franchise remains strong despite cut in rates. CASA stood at 57%.

KMB's s'lone earnings of Rs12.4bn (PLe: Rs15.7 bn) was a miss on back of slightly higher provisions and lower other income (as bank did not book any treasury gains). NII growth of 18% YoY stood out despite loan growth being flattish YoY as bank has been materially benefitting from lowering cost of funding (150bps SA rate cut in 3 months). Moratorium has come off to 9.65% v/s 26% in May with certain collections to be made from Morat 1.0, but could add to stress eventually from H2FY21 onwards. We continue to build 80100bps of credit cost and 150bps of slippages in FY21/FY22E respectively. In our view, the bank has a very resilient balance sheet to any shock with strong...

27 July 2020 KMB reported a mixed quarter with weak earnings performance, affected by lower fee income, 32bp QoQ decline in margins and sharp sequential decline in loan growth. On the asset quality front, slippages were elevated, driving 45bp QoQ increase in GNPA ratio while provision coverage remained broadly stable. On the business front, loan book declined 7% QoQ, affected by the (a) lockdown, and (b) banks cautious approach in a weak macro environment. SA deposits growth was steady, driving further improvement in CASA mix to 56.7%. We have cut our PAT estimate for FY21/22E by 10%/11%, primarily to factor in higher credit cost, lower growth and other income. Maintain KMB reported 9% YoY decline in 1QFY21 standalone PAT to INR12.4b (6% below our estimates), affected by higher decline in other income and elevated provisions toward COVID-19 of INR6.2b. KMB, thus, has total COVID-19 provisions of INR12.

We recommend a BUY on KOTAK MAHINDRA BANK with a Target Price of Rs 1,280, an upside of 9% from CMP of Rs.1,173 and Stop Loss Rs 1,110

The cost-to-income rate has further improved to 46.02% in Q4FY2020 from 49.95% in the previous quarter and 47.15% in the corresponding quarter last year. However, the credit cost (NPA provisions as an annualized percentage of loans) jumped to 0.68% in Q4FY2020 from 0.47% in Q4FY2019 due to COVID 19 related provisions of Rs 660 crore. Further, the bank exhibited some moderation in loan growth to 7% at end March 2020. The business growth of the bank also eased to 12% at end March 2020....

KMB's s'lone earnings of Rs12.6bn (PLe: Rs13.2 bn) stood lower on back of higher provisions both on overdue loans opting moratorium and enhancing PCR towards 70%, where other large peer banks are standing at. Loan growth remained challenging at 6-7% with conservative lending amongst segments, although deposit franchise continued to show a traction with strong SA inflow. Bank has used this opportunity to cut SA rates and benefit itself from lower deposits costs with further cuts in Apr'20 to bridge the gap on cost of funds with peers, thus helping NIMs move higher to 4.72%. Management...

Post Covid resilience expected to be better than peers Healthy asset allocation, gaining momentum in market share provide relief in tough times. KMB maintains cautious stance in lending to companies with high cost and high leverage. Risk of exposure towards MSME is curtailed by government efforts. KMB would consider further SME/MSME lending given government's 100% credit guarantee support. Also, tight cost control measures by it including salary cuts by top management would also fuel...