Emkay Global Financial's research report on Kotak Mahindra Bank
Kotak Mahindra Bank (KMB) posted a 12% beat on PAT at Rs27.9bn, mainly owing to better margins and continuation of the contingent-provision drawdown, albeit partly offset by higher opex/staff expenses. Bank has indicated that it would continue investing in franchisee/technology/people and, thus, cost ratios would remain elevated. Credit-growth momentum was strong at 23% YoY/6% QoQ, but deposit growth is lagging, including CASA growth (ratio down 700bps YTD to 53%). Though NIM improved 30bps QoQ to a high of 5.5% on asset re-pricing in 3Q, it should decelerate hereon, as deposit growth as well as funding cost catches up, leading to some pressure on PPoP growth. Asset quality further improved, with 18bps contraction in GNPA ratio to 1.9%. Bank does not see any incremental asset-quality risk and continues to consume the contingentprovision buffer, unlike large peers who have retained/are re-building buffers. We raise our FY23 earnings estimates by 2%, but lower for FY24E/FY25E earnings by 3%/6% due to margin deceleration from the peak and higher opex.
Outlook
We expect RoA to normalize to 2% in FY25E from a high of 2.2% in FY23E, and RoE to settle at around 13%. Also, we believe that the impending MD change in Jan-24 will emerge as a key overhang on the stock in the near-to-medium term, as we move closer to the event. Thus, we trim our P/ABV for the standalone bank to 3x from 3.5x earlier, and revise our TP downwards to Rs2,000 (including subs value at Rs550 post 20% discount). We also lower our rating on the stock to HOLD from BUY.