Accumulate Kotak Mahindra Bank; target of Rs 1900: Dolat Capital Market

Dolat Capital Market's research report on Kotak Mahindra Bank

KMB reported in line numbers with NII and PPoP growing by 17% and 29% respectively. Sequential loan growth of 4.5% YoY surprised positively. Pro-forma NPAs were higher sequentially by ~60 bps to 3.27%, with pro-forma PCR at ~61%. However, bank’s COVID related provision buffers of Rs12.8bn remain unutilized thus far. Pro forma slippages at ~Rs19bn for the quarter or 3.79% (annualized) had a disproportionate share of unsecured consumer retail loans, with 40% of incremental stress coming from this segment against its loan-book share of 6%. Total restructured portfolio (including invocations) is likely to be ~0.3% of loans and remains below industry. Excluding PL and CV segments, sequential growth was broad based including a healthy growth in corporate book of over 6.5%. ECLGS disbursements stood at Rs97bn or 4.7% of advances. The bank has a market share of 5.5% in the total industry ECLGS disbursements against KMB’s advances market share of ~2%.

Outlook

Our earnings upgrade for FY21E is largely led by decline in credit costs, while that for FY22/23E more impacted by operating efficiencies. We maintain our ACCUMULATE rating with a revised TP of Rs1,900 based on 3.9x Dec-22E ABV for the standalone bank and value of subsidiaries, implying a P/ABV of 5.0x.

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