Maintain REDUCE on Kotak Mahindra Bank - Uptick in credit growth, but positives priced in - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

Kotak Mahindra Bank's (KMB) 4QFY21 P&L performance was better than our expectations, largely on the back of high other income (31% YoY), partially offset by lower-than-expected NII growth (8% YoY). The bank build on its uptick in credit growth in the last quarter with 4.5% sequential loan growth. Asset quality remains robust with FY21 slippages at 2.4%, along with a low restructured pool (0.19% of loans) and high provisioning buffer (PCR at 64%, other provisions at 2.1% of loans). However, current lofty valuations factor in the uptick in credit, cost of funds tailwinds, and normalising credit costs in FY22. Maintain REDUCE with revised SoTP of INR1747 (earlier 1707).

Uptick in credit driven by mortgages, agri finance: KMB's uptick in loan growth (4.5% QoQ) was largely driven by mortgages (9.5% QoQ) and agri finance (7.7% QoQ). With industry-leading CASA ratio at 60.4% and cost of SA at 3.74%, KMB is working on its CoF tailwinds (~150bps down during FY21), to build its mortgage book, and seeking market share gains. However, the changing asset mix is likely to lead to put pressure on NIMs (~6bps by FY23E). Corporate portfolio witnessed de-growth (-7% YoY) due to low risk-adjusted returns opportunities, as per management. We continue to factor in 13.6% loan growth during FY22-FY23E.

Robust asset quality with cautious stance on retail unsecured assets: KMB continued its cautious stance on retail unsecured assets (5.8% of assets from 7.5% in Mar'20). Gross slippages were at INR44bn for H2FY21 (4% annualised), with disproportionate contribution from retail unsecured segment and adjusted credit costs at 84bps for FY21. With low restructured pool and high provisioning buffer, we factor in 0.9% LLPs during FY22- FY23E.

Steady performance from subsidiaries, maintain REDUCE: KMB's subsidiaries' contribution to consolidated PAT remained steady at ~31% in FY21. Non-lending subsidiaries continued their healthy growth with buoyancy in capital markets, while lending subsidiaries were focused on asset quality and capital preservation. We revise our FY22/FY23 earnings estimates by -3/+0.5% to factor in NIMs compression offset by increase in fee income.

Shares of KOTAK MAHINDRA BANK LTD. was last trading in BSE at Rs.1730 as compared to the previous close of Rs. 1724.3. The total number of shares traded during the day was 323236 in over 6480 trades.

The stock hit an intraday high of Rs. 1764.1 and intraday low of 1725.4. The net turnover during the day was Rs. 564718618.

Source : Equity Bulls

Keywords