Motilal Oswal neutral on Kotak Mahindra Bank

“Kotak Mahindra Bank (KMB) posted 21% YoY (7% QoQ) growth in 3QFY12 consolidated PAT to INR4.6b. Excluding profit from the life insurance business, PAT grew 16% YoY (8% QoQ) to INR4.2b. Profitability of lending business remained strong, with robust loan growth and superior asset quality performance. Contribution of lending operations to consolidated profit increased further to ~83% (as compared with ~80% in 1HFY12). Consolidated loans grew 31.8% YoY and 4.5% QoQ to INR528b, driven by strong sequential growth in personal, agriculture and home loans. Reported margin contracted by 10bp QoQ to 4.7%. KMB's (standalone bank) deposits grew 36% YoY and 6% QoQ to INR384b. CASA ratio improved to 27.7% from 25.7% on account of healthy 24% QoQ increase in savings bank balances boosted by high interest rates offered on savings bank deposits post deregulation of savings bank rates. Profit from the life insurance business continued to grow on a YoY basis, but declined QoQ to INR470m from INR530m in the previous quarter. In line with the industry scenario, profitability of capital market related businesses remains under pressure.”

“KMB is likely to remain on a strong growth path, led by corporate, home and CV loans. We expect the bank to report ~29% CAGR in loan growth over FY11-13. Cost-to-income ratio is likely to remain above 50%, led by aggressive branch expansion and marketing campaign for savings deposits. Lending business will continue to drive profitability and we expect the contribution of lending business to remain high at 80%+. The stock trades at 2.4x FY13E consolidated BV and 17x FY13E consolidated EPS. Given the rich valuations, we maintain Neutral, with an SOTP-based target price of INR 429,” says Motilal Oswal research report.

Public holding more than 90% in Indian cos

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