LKP Research's research report on Kotak Mahindra Bank
Kotak Mahindra Bank (KMB) reported strong 4QFY23 results with the key pointers being: a) Strong NII (up 35% YoY and 8% QoQ) and seasonally stable provisions, b) GNPA/NNPA ratio moderation to 1.78%/0.37%, c) restructured pool inched down to ₹7.1bn (22bps of advances) v/s ₹7.7bn in the previous quarter, d) credit off-take strong with growth of 18% YoY and 3% sequentially, e) covid provision held at ₹4bn as of 3QFY23, provision write-back worth ₹380mn, f) the total contingent provisioning (Covid + Standard + Specific) stood 0.6% of net advances, h) Total PCR (including covid, general and specific provision) stood ~113% of GNPL amount, g) Headline NIM inched up 28bps QoQ to 5.75%. Moreover, lower Opex (C/I at 44% v/s 50% in 3QFY23) led to superior ROA of ~3%. However, we see a weakness in fixed rate saving account growth. It has a relatively weak liability franchise (v/s peers: HDFCB and ICICIB) that will be tested in FY24E as deposit competition is intensifying. We believe, 4QFY23 to be peak of earnings as there is no further room for EBLR re-pricing. The CDR bottleneck (~89%) shows the imminent pressure to grow deposits. Furthermore, the uncertainty over Uday Kotak’s replacement will remain a short term overhang. Nevertheless, asset quality provides comfort for lower credit cost. Hence, the peak ROA (~3% in 4QFY23) likely to settle at the historical range of 2.2 % - 2.4%. We recommend BUY factoring a best in class ROA of more than 2%.
Outlook
We expect KMB’s loan book to grow at CAGR of ~18% over FY23-25E. At CMP of ₹1938, the stock is available at 3.7(x) standalone FY25E Adj. BVPS of ₹539. Valuing the standalone entity with 4.0xFY25E BVPS and subsidiaries valuation at ₹74; we arrive at a target price of ₹2,232. We recommend BUY with a potential upside of 15%.
For all recommendations report, click here
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.