ICICI Direct is bullish on Kotak Mahindra Bank has recommended buy rating on the stock with a target price of Rs 1440 in its research report dated May 02, 2018.
ICICI Direct's research report on Kotak Mahindra Bank
Kotak Mahindra Bank (KMB) reported steady set of numbers. NII grew 19% YoY to Rs2579 crore, led by healthy credit offtake at 24.7% YoY to Rs 169718 crore. Margins improved QoQ to 4.35% from 4.2% Healthy operational performance continued with PPP at Rs 2018 crore, up 18.6% YoY. Cost income ratio improved ~110 bps QoQ at 45.9%, despite one-time provision of ~82 crore related to change in gratuity ceiling. Credit cost remained lower, however, provision related to investment depreciation at ~Rs 132 crore (bank did not utilized amortization dispensation) impacted PAT growth at Rs 1124 crore. Asset quality remained resilient with 9 bps decline in GNPA ratio to 2.22% (Rs 3825 crore) & NNPA eased by 11 bps QoQ to 1.09% (Rs 1665 crore). SMA2 outstanding declined at Rs 72 crore (0.04% of advances). Advances growth continued at 24.7% YoY, led by traction in CV, corporate banking and small business including personal loans at 40%, 25% and 44% YoY. Deposit accretion came in at 22% YoY to Rs 192643 crore with ~410 bps QoQ improvement in CASA at 50.8%. Additional details on subsidiaries has been provided. AUM of wealth management business stood at ~Rs 2.25 lakh crores as of March 2018. Indian Embedded Value (IEV) of Kotak Life is at Rs 5824 crore.
Banking business has been witnessing continued improvement in business growth and asset quality. We remain positive on the fundamental strength given steady NIM at 4.2-4.4%, healthy business growth and improvement in CI ratio ahead. Asset quality is seen to remain prudent with GNPA seen at ~2% in FY20E. With non-banking businesses (prime, life insurance and securities business) firing up on growth and profitability, value enrichment remains a positive. Therefore, proportion of non-banking business in overall profitability is on the upturn. Valuing the stock on SOTP, we revise our TP upwards to Rs 1440 from Rs 1200 earlier and continue with our BUY rating on the stock.
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