Sharekhan's research report on Kotak Mahindra Bank
Kotak Mahindra Bank’s earnings growth was steady , rising 67% y-o-y which translated to RoA of ~2.8% led by higher other income despiteNIMs compression, higher opex growth and slightly higher credit cost. Sustainable RoAs for the bank is expected in the range of 2.2-2.5%. Headline asset quality trends remained stable q-o-q with GNPA/NNPA ratio at 1.77%/0.40% although slippages ratio was higher at 1.7% versus 1.2% q-o-q (cal. as % of 12m trailing loans) due to seasonality in the portfolio and normalisation of slippages but it remained lower on y-o-y basis. Kotak`s slippage ratio still continues to be lower than the top large private bank which is a key positive. Core credit cost stood at 54 bps vs 24 bps q-o-q (excluding reversal of provisions). The bank does not see any potential stress in the any of the portfolio segment but guided that normalisation of slippages and credit cost is expected to happen. Deposit growth (up 6% q-o-q) picked up sharply and outpaced loan growth. Traction in deposits was led by term deposits and a newly product launched Activ money for saving account holders. The bank guided that it is on track with leadership transition and would come out with development sooner.
Outlook
We maintain our Buy rating with an unchanged SOTP-based PT of Rs. 2,250. The stock currently trades at 3.0x/2.6x its FY2024E/FY2025E core BV estimates.
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