HDFC Securities is bullish on Kotak Mahindra Bank has recommended buy rating on the stock with a target price of Rs 1378 in its research report dated July 20, 2018.
HDFC Securities' research report on Kotak Mahindra Bank
A one-time MTM hit (~Rs 2.1bn) and higher NPA provisioning (LLP +49% QoQ, PCR rose to 61%) capped KMB’s net earnings (down 9% QoQ, missing estimates by ~7%). The business remains healthy as ever, with broad based loan growth (+24% YoY), best in class NIMs (4.30%) and negligible net stress incl. SMA-II (97bps, down 6bps). Opex growth of merely 10% YoY (flat QoQ) despite Rs 300-400mn invested in 811 was praiseworthy. Though the differential rate offering comes at an upfront cost (Rs 12-13bn a year), it will help KMB to garner low cost deposits (esp. with interest rates rising). Rapid asset growth will (more than) compensate for this as KMB commands a higher share in lucrative lending spaces. Cross sell opportunities on the acquired customer base will also help.
Fast growing subs will help KMB flower into a full service financial conglomerate. With best-in-class return ratios (core RoAA of 1.77% in FY20E), premium valuations are justified. Maintain BUY with SOTP of Rs 1,378 (4.5x Mar-20 core ABV of Rs 238 + Rs 309 for subs).
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