LKP Research's research report on Kotak Mahindra Bank
Kotak Mahindra Bank (KMB) reported strong 2QFY20 results with the key pointers being: a) significant improvement in collection efficiencies on month-on-month basis, b) gross slippage came down at ₹2.64bn v/s ₹7.96bn in 1QFY21, as NPA recognition stood still c) sequential credit growth stood positive at 0.4% YoY; with conservative approach of risk aversion, d) sequentially lower cost to income ratio (38.5% v/s 41.7% in the previous quarter) driven by higher profitability and lower opex., e) Decline in provisioning expenses (₹3.6bn v/s 9.6bn in the previous quarter) led to PAT growth of 75.5% sequentially; the bank has made total COVID provision of ₹12.8bn as of 2QFY21, f) the total contingent provisioning (COVID + Standard + Specific) stood 1.13% of net advances, g) Total PCR (including COVID, general and specific provision) stood above the GNPL amount, g) Headline NIM inched up 18bps QoQ to 4.58% on the back of lower cost of deposits. We believe the bank should grow conservatively with marginal blip in asset quality. With normalization of credit cost, we estimate a ROA/ROE of 1.8%/12.4% in FY22E. Thus, we recommend BUY.
Outlook
We expect KMB’s loan book to grow at CAGR of ~7.7% over FY20-23E. The bank is available at 4.5(x) standalone FY22E Adj. BVPS of ₹309. Valuing the standalone entity with 4.5xFY22E BVPS of ₹309 and SOTP valuation for subsidiaries and JVs (₹289); we arrive at a target price of ₹1,680. We recommend BUY rating with a potential upside of 19%.
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