Buy Kotak Mahindra Bank; target of Rs 1075: JM Financial

JM Financial's research report on Kotak Mahindra Bank

Kotak’s consolidated profits for 2QFY18 were up 20% YoY and were in-line with our estimates. Growth in customer assets, which had picked up in the previous quarter, sustained in 2QFY18 with 21% YoY growth (22% YoY in consolidated loan book) and management commentary on growth outlook remains confident. Key positives during the quarter were a) significant decline in cost-to-income ratio (down ~200bps YoY) despite additional expenditure pertaining to ‘811’ and priority sector certificates, b) Strong SA growth of +61% YoY driven by government business, and c) management disclosure that Post-IFRS networth of the bank will be higher than under the current accounting methodology. Subsidiaries, too, showed healthy growth especially on life insurance, asset management and retail securities businesses. After nearly eight quarters of single-digit growth, Kotak prime delivered 15% YoY PAT growth with nearly 8% sequential growth in car loans. Despite rich valuations, we like Kotak for its clean asset quality, diversified presence and encouraging growth trends.

Outlook
We maintain our BUY rating on the stock with unchanged TP.

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