Kotak Mahindra Bank Ltd. share price target

KMB is India's leading full services financial conglomerate, dominating the banks, securities and investment banking space.

Inherent strengths (strong liability franchise, limited exposure to stressed sectors and a calibrated approach to growth) position KMB to deliver sustainably, even in times of economic uncertainty. However, a limited upside forces us to DOWNGRADE to NEUTRAL with a TP of Rs 1,531 (4.25x Jun-21E core ABV of Rs 283 + Rs 328 for subs). The issue on promoter holding with the regulator remains unresolved (next hearing in CY20). KMB reported an in line 1Q, with higher NIMs, slower growth and stable asset quality. With limited upside in sight, we DOWNGRADE to NEUTRAL with a TP of Rs 1,531 (4.25x Jun-21E core ABV of Rs 283 + Rs 328 for subs).

Credit growth has moderated from earlier trajectory of 20%+ growth due to lower growth in corporate & business banking (7.4% YoY) & marginal moderation in CV & retail unsecured book. Nonetheless, it continued to remain healthy at ~18% YoY to | 208030 crore on account of agriculture growth (22% YoY) due to higher growth in tractor segment. The management reiterated that it is poised to achieve 20% credit growth in FY20 with focus shifting towards SME & consumer durable financing. Deposit growth continued to remain healthy at 22.8% YoY to | 232931 crore...

Strong pricing power and lowered cost of funds helped positive bias on NIMs which stood at 4.5% during the quarter. KMB's s'lone earnings of Rs13.6bn (PLe: 13.8bn) was marginally lower mainly on slightly higher provisioning. Key miss was slower loan growth of 18% YoY (15% YoY incl. Auto loans) from +20% YoY for last few quarters, while key positive was continued traction on CASA which on average basis grew by...

On consolidated front, the bank has reported 14% growth in the net profit to Rs 2038.27 crore for the quarter ended March 2019, up from Rs 1789.24 crore in the quarter ended March 2018. NII increased 18% to Rs 4001.02 crore, while other income moved up 41% to Rs 5847.64...

The provisions have decreased by 44.3% on a YoY basis, and the provision coverage ratio has increased to 65.4% (56.5% in Q4FY18). The Gross/Net NPA of the bank improved to 2.14%/0.75% in Q4FY19,...

KMB's consistent outperformance across parameters (vs. peers) warrants premium multiples. The slight increase in delinquent loans is well within tolerable limits. There is scope for cyclical improvement in subsidiaries' performance. Management quality bolsters our constructive stance. However, the ongoing tussle with the regulator (on promoter shareholding) will remain an overhang on the stock, keeping it range bound in the near term. Consistent performance across parameters justifies our positive view on KMB. The minor slip in asset quality is excusable. Maintain BUY with an SOTP of Rs 1,481 (4.25x Mar-21E core ABV of Rs 272 + Rs 326 for subs).

Trends continue; Improvement in subsidiaries; Maintain Accumulate Kotak Mahindra Bank reported a consolidated PAT growth of 14% YoY, with the bank growing at a robust 25% YoY. Its AMC and life insurance businesses witnessed strong growth (in trend), and Prime showed early signs of improvement. On a standalone basis, the bank's advances grew 21%; a healthy NIM expansion, lower credit costs and healthy other incomes growth aided a higher PAT growth. GNPA for the bank rose 7 bps to 2.14%. The risk perception for most of its products is currently stable....

Advances continue to grow at a healthy pace of 21% YoY to | 205695 crore. The traction in credit off take was on back of growth in home loan (including LAP), small business including personal loans & agriculture finance remain healthy. CV & corporate growth witnessed moderation during the quarter. The management has cautious approach towards auto & financial sector. Contrary to its peers, on back of 20%+ YoY growth in saving & current deposit, bank posted 17.3% YoY growth in deposits to | 225880 crore with consequent CASA ratio at 52.5%. Asset quality broadly remained stable with...