Neutral on Kotak Mahindra Bank - Motilal Oswal Q2 2010-11 Update

Kotak Mahindra Bank (KMB IN; Mkt Cap USD8.2b, CMP Rs501, Neutral)

- The lending business' consolidated profits grew 52% YoY led by (1) strong loan growth of 40% YoY to Rs375b, and (2) decline in NPA provisions.

- Capital market related business (broking and IB) reported 26% YoY decline in profits. Lower market share and falling yields led to pressure on profitability.

- AUM was Rs497b v/s Rs480b a quarter earlier. AMC business profits declined 84% YoY as there was a change in regulation for MTM of liquid MF in P&L.

- GNPA improved to 2.37% from 2.79% a quarter earlier. PCR improved to 70%. We expect provisions to fall sharply in 2HFY11 as slippages are under control.

- We maintain our earnings estimates for FY11 and FY12. We expect earnings CAGR (ex insurance) of 21% over FY10-12 and expect the bank to post EPS of Rs21 in FY11 and Rs26 in FY12. BV will be Rs151 in FY11 and Rs177 in FY12. The stock trades 2.8x FY12E BV and 19x FY12E EPS (adjusted for the value of the insurance business). Maintain Neutral with a target price of Rs488.

Source : Equity Bulls

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