Kotak Mahindra Bank Ltd. share price target

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...

While KMB's PPoP growth was healthy at 19% YoY led by stable NIM and healthy sequential growth in other income, PAT was impacted by Rs6.5bn of COVID related provisions. Higher CASA ratio and decline in SA deposit rates resulted in ~45 bps QoQ decline in CoF, aiding NIM of 4.7% despite a 700 bps decline in Loan-deposit ratio. We continue to like KMB for its strong liability franchise with improving CoF, conservative lending approach, strong subsidiaries, and healthy capital position. Despite lowering growth estimates and doubling of...

13 May 2020 Loan growth remains muted as KMB continues to be cautious in a weak macro environment, further aggravated by the COVID-19 crisis. On the other hand, deposit growth remains strong, with the CASA ratio scaling new heights. Moreover, the standstill benefit enabled 90dpd loans worth INR6.6b to continue as standard. Overall, operating performance stood healthy, with PPOP growing at 19% YoY, although provisions for COVID-19 affected earnings. We cut our PAT estimate for FY21/22 by 14%/8%, primarily as we factor in higher credit cost. Maintain KMB reported 10% YoY decline in 4QFY20 standalone PAT at INR12.67b, affected by higher provisions toward COVID-19 of INR6.5b @ 10% of overdue loans, against which the standstill benefit is availed. NII grew at ~17% YoY to INR35.6b, supported by stable margins at 4.72% (26bp YoY increase). Opex growth stood at 14% YoY (~2% QoQ decline) to INR23.2b.

Kotak Bank's (KMB) Q4FY20 PAT at Rs 12.7bn (10% YoY) missed estimates as the bank made Covid-related general provisions of Rs 6.5bn.

Further, the bank has informed that the Board of Directors have resolved to withdraw their writ petition in the Bombay High Court. In our view, an agreement among regulator and promoter of the bank will put an end to the overhang on the stock. This brings big relief from the bank's perspective as a reduction in stake from 29.96% is moderated to 26% with a new time frame of six months after approval of regulator. Further, time bound overhang on reduction of stake to 15% has been done away. In...

KMB has received in-principle approval from RBI to cap its promoters' voting rights in the bank from ~30% currently to 20% of paid-up voting equity share capital (PUVESC) until Mar'20, and thereafter reduce this to 15%.

Bank's CASA ratio increased 300bps YoY to 53.7%, driven by strong growth in average CA and SA deposits of 19.6% and 15.9% respectively. GNPA ratio up 44bps YoY due to slippages in few corporate accounts. We retain our HOLD rating on the stock and value the bank at 3.6x FY22E...

KMB's strong fundamentals (CRAR, liability franchise, minimal reported stress) should enable the bank to deliver an improvement in already strong return ratios. We do not find the current slowdown in growth and uptick in stress worrisome. Our NEUTRAL stance reflects discomfort on rich valuations. The contentious issue of promoter holding remains unresolved, and the next hearing is slated in Mar-20. KMBs earnings were slightly below estimates as opex (led by a one-off) and provisions came in higher. GNPAs continued to rise, though not alarmingly. Maintain NEUTRAL with a TP of Rs 1,681 (4.25x Dec-21E core ABV of Rs 309 + Rs 367 for subs), as valuations are expensive.

Net interest income (NII) came in at | 3430 crore, up 16.7% YoY, on the back of an improvement of 300 bps YoY in margins at 4.69% (up 8 bps QoQ). Other income grew 36.3% YoY to | 1314 crore. Traction in core fee income remained slower at ~8% YoY. One-time charge of | 200 crore towards pension obligation has led CI ratio to inch up to 50.2%. Provision came in higher at | 444 crore i.e. ~20 bps of advances. Moderation in operating profit and higher-than-expected provision was partly offset by lower tax outgo...