Q3FY21 Result Update - Kotak Mahindra Bank Ltd - YES Securities

(Rating: BUY, TP: Rs 2,005, Upside 11.8%)

Sturdy growth, asset quality and earnings performance; causing mild upgrades in EPS/ABV estimates. Retain BUY rating and raise 12m PT to Rs2,005

- KMB delivered a better-than-expected core operating performance, reflected in marginal beat on core PPOP (up 33% yoy and reversion of core PPOP margin to pre-Covid level) and significantly lower credit cost. The latter was underpinned by a strong asset quality performance that was manifested in restrained 60bps sequential increase in proforma Gross NPLs (to 3.3%), marginal one-time restructuring at 0.28% of net advances and lower SMA-2 book at 31 bps of net advances. On the proforma NPLs, KMB provided for interest accrued but not collected even for the moratorium period. As the bank did not dip into its Covid buffer, it was stable at Rs12.8bn (60 bps of advances).

- After delivering a strong broad-based 4.5% qoq growth (slower traction in CV/CE and unsecured retail), which was a seven-quarter high, the management sees momentum sustaining in large segments of Mortgages, Agri Finance and Corporate lending. The deposits mix trends remain impressive with incremental gains on CASA (59% of deposits) and granularization. The improvement in LDR (utilization of excess BS liquidity) will aid NIM in coming quarters and this along with normalization of credit cost will drive a solid earnings performance. We estimate 20% earnings CAGR for KMB during FY20-23 with a 20-30 bps expansion in RoA. RoE improvement will be contingent on the pace of growth. The core bank trades at 3.5x FY23 P/ABV, at 20-25% premium to HDFC Bank, thus scope for a large re-rating is restricted. We retain BUY rating and upgrade price target to Rs2,005.

Shares of KOTAK MAHINDRA BANK LTD. was last trading in BSE at Rs.1766.7 as compared to the previous close of Rs. 1795.15. The total number of shares traded during the day was 210818 in over 18509 trades.

The stock hit an intraday high of Rs. 1823.05 and intraday low of 1747.3. The net turnover during the day was Rs. 375578626.

Source : Equity Bulls

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