"Kotak Mahindra Bank, at current valuations, seems very expensive at a P/BV of 6x. However, investors with a long term horizon might consider this company for investment on dips and gradually accumulate it," says Akash Jain, Vice-president, Equity Research at Ajcon Global Services.
Kotak Mahindra Bank, at current valuations, seems very expensive at a P/BV of 6x. However, investors with a long term horizon might consider this company for investment on dips and gradually accumulate it as we believe there is lot of value in its subsidiaries which is not reflected in its price. We are impressed by Bank’s lending growth with a tight control on NPAs.
The bank is an extremely well-capitalised entity (capital adequacy ratio of 18.2 percent). The company’s Q4FY18 performance was brilliant and amazed by its sheer ability to control its NPAs in an environment where its peers in private banking space have been grappling with NPA problem.
In Q4FY18, the company’s PAT witnessed a YoY growth of 27 percent to Rs 1,789 crore. The company’s profitability was contributed by its well managed subsidiaries. Of this, strong growth was posted by Kotak Mahindra Investments, Kotak Mahindra Capital, Kotak AMC and its international subsidiaries. Net interest income (NII), was in line with expectations, having grown 18 percent year on year to Rs 2,580 crore.
Net interest margins (NIM) fell to 4.35 percent during the reporting quarter, from 4.63 percent in the corresponding quarter a year ago. Total income during Q4FY18 grew 9 percent to Rs 10,874 crore, as against Rs 9,954 crore during the year-ago period. Advances witnessed YoY growth of 25 percent in Q4 FY18 led by corporate loans, commercial vehicles loans and also personal consumption loans by individuals.
The management is witnessing a clear pick –up in demand for loans as result of which the growth has been higher than the guidance of 20 percent plus the management expects to clock 20 percent plus growth in the next fiscal as well.
The bank’s standalone gross NPAs were at 2.22 percent in March 2018 down from 2.59 percent a year earlier. The so called SMA-2 loans which are overdue for more than 60 days but less than 90 days were just 0.04 percent of net advances at Rs 72 crore.
Total income in FY18 saw a jump of 14.2 percent on YoY basis to Rs 38,724 crore. The company witnessed a rise in PAT by 26 percent to touch Rs 6,201 crore in FY18. Full year consolidated profit growth of 26 percent was led by capital market and asset management subsidiaries. Its asset quality improved during FY18 as its gross non-performing assets (NPAs) came down to under 2 percent from 2.25 percent at the end of FY17. Its net NPAs were 0.86 percent as against 1.09 percent a year earlier.Disclaimer: The author is Vice-president, Equity Research at Ajcon Global Services. The views and investment tips expressed by investment experts 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.