14 May 2020 Results Review 4QFY20 Kotak Mahindra Bank Mahindra... · Kotak Mahindra Bank Page | 3 : Results Review 4QFY20 SOTP Rs bn Per Share Rationale KM Mahindra Bank – Standalone

14 May 2020 Results Review 4QFY20

Kotak Mahindra Bank

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters

Stronger than most, but expensive

KMB’s earnings were below estimates, due to high COVID-19 related

provisions (a trend seen across banks in 4Q). GNPA growth was contained by

the standstill classification. KMB’s strong capital base, stable & granular

deposit franchise and superior underwriting practices make it one of the best

placed in the sector. A fund-raise, while RoAE dilutive, is not undesirable. It

would (1) partly resolve the promoter stake issue and (2) further strengthen

the bank’s already strong b/s. Our ADD rating (TP of Rs 1,282, 3.0x Mar-22E

ABV + Rs 294 for subs) reflects expensive valuations.

KMB saw strong deposit growth at 16.4/9.8%, driven by 24.5/14.9% CASA

growth. Consequently, the CASA ratio rose 367/247bps YoY/QoQ to 56.2%

(highest in the industry). Wholesale (floating rate) SA grew ~19% QoQ but

a/c for ~16% of the QoQ increase in SA. Strong SA growth is likely to have

been driven by m-share gains as few banks saw a steep decline in deposits in

4QFY20. TD growth was relatively tepid at 3.9% QoQ, and understandable

given the strong CASA growth and slow loan growth. While overall deposit

growth may slow from the current pace, KMB is likely to gain deposit m-

share, as a result of increasing polarisation of deposits.

GNPAs dipped (optically) 7.1% QoQ to Rs 50.3bn (2.25%, +11/-21bps) as

slippages were ~54% lower at Rs 4.91bn (90bps ann.). Pursuant to the RBI’s

Apr-20 circular, slippages and GNPLs were lower by ~Rs 6.6bn. Adj. for this,

slippages would’ve grown ~27/8% to ~Rs 11.5bn (2.1% ann., +30/13bps) and

GNPAs would’ve been ~Rs 56.9bn (~2.6%). Along with the system, KMB is

likely to see higher stress. However, due to calibrated growth in unsecured

and MSME loans, and better underwriting practices (as suggested by

empirical evidence), KMB is likely to perform better than most peers. Our

slippage estimates of ~2.4% over FY21-22E are conservative.

Management commentary on COVID-19: (1) 26% of the borrowers (by

value) availed moratorium until Apr-20, and the quantum has increased

since. A greater proportion of retail loans were under moratorium. (2) The

mgt expressed willingness to participate in the recently announced MSME

relief package, subject to govt. backing. (3) It expressed caution on sectors

such as unsecured personal loans, CV, hospitality, travel and tourism. (4)

Specific loan loss provisions, standard asset provisions and other relevant

provisions were in excess of KMB’s GNPLs. (5) The bank saw material MoM

SA growth in Apr-20 and this is a stark departure from usual trends, as the

bank sees MoM SA de-growth in Apr. Further, this was despite the recent

SA rate cut.

(Rs mn) 4Q

FY20

4Q

FY19

YoY

(%)

3Q

FY20

QoQ

(%) FY19 FY20P FY21E FY22E

Net Interest

Income 35,597 30,479 16.8% 34,295 3.8% 112,590 134,997 151,568 166,163

PPOP 27,253 22,823 19.4% 23,881 14.1% 83,482 100,208 111,714 120,359

PAT 12,666 14,078 -10.0% 15,959 -20.6% 48,653 59,472 62,892 71,273

EPS (Rs) 6.6 7.4 -10.2% 8.4 -20.8% 25.5 31.1 31.8 36.0

Core ROAE (%)

13.0 13.6 11.6 11.1

Core ROAA (%)

1.70 1.78 1.67 1.75

Core ABVPS (Rs)

201 240 292 330

P/E (x)#

33.7 28.9 29.2 24.8

P/ABV (x)# 4.28 3.74 3.17 2.71

Source: Bank, HSIE Research; # Adjusted for subsidiaries value

ADD

CMP (as on 13 May 2020) Rs 1,186

Target Price Rs 1,282

NIFTY 9,384

KEY

CHANGES OLD NEW

Rating ADD ADD

Price Target Rs 1,263 Rs 1,282

EPS % FY21E FY22E

-2.0% 3.3%

KEY STOCK DATA

Bloomberg code KMB IN

No. of Shares (mn) 1,913

MCap (Rs bn) / ($ mn) 2,270/30,141

6m avg traded value (Rs mn) 6,442

52 Week high / low Rs 1,740/1,000

STOCK PERFORMANCE (%)

3M 6M 12M

Absolute (%) (29.8) (26.1) (14.6)

Relative (%) (7.0) (5.9) (0.9)

SHAREHOLDING PATTERN (%)

Dec-19 Mar-20

Promoters 30.0 29.9

FIs & Local MFs 12.2 12.5

FPIs 39.8 39.2

Public & Others 18.0 18.4

Pledged Shares

Source : BSE

Darpin Shah

[email protected]

+91-22-6171-7328

Aakash Dattani

[email protected]

+91-22-6171-7337

Page | 2

Kotak Mahindra Bank: Results Review 4QFY20

Soft loan growth: At 6.8/1.4%, KMB’s loan growth was not only slower vs. our

estimates but also slower vs. non-food credit growth (+7.6% YoY in Mar-20).

Tractor (+18.9/4.3%, 3.4% of loans), mortgages (+15.1/1.9%, 21.3% of loans) were

some of the fastest growing segments. Credit card loans grew (2.1% of loans)

14.6% YoY, but dipped 3.8% QoQ. Corporate & biz. banking loans, the largest

portion of KMB’s loan book (38.6% of loans), grew 5.9/1.7%. We expect KMB’s

loans to grow ~9% over FY20-22E.

NIMs grew 24/3bps to 4.72%, driven by widening spreads, which in turn were

driven by falling CoF (4.58% calc., -77/-45bps). Falling cost of SA and rising

proportion of CASA have been significant drivers of CoF movement. Margin

expansion was limited by a sharp 745/695bps fall in the CD ratio 83.6% and rise

in liquid assets (+116/179% YoY/QoQ). KMB reduced SA rates by ~150bps in Apr-

20, and this will cushion NIMs even as credit offtake remains weak. We

anticipate calc. NIMs of ~4.3% over FY20-22E. NIMs are also amplified by high

CRAR and any further capital infusion will have the same effect.

Non-tax provisions registered a sharp 512/136% rise to Rs 10.5bn as KMB made

COVID-19 related provisions fo Rs 6.5bn (incl. and more than RBI mandated

provisions, on total overdue loans of Rs 65bn). KMB shored up its coverage (calc.

PCR up 357/457bps YoY/QoQ to 69%). This too was partly aided by the standstill

classification of a/cs. In the medium term, we expect provisions to remain higher

vs. historical trends. We model for LLPs of ~1.15% over FY20-22E.

Other income grew 17.2/11%, driven by a sharp 11.8% QoQ growth in fee income

(+7% YoY, 85% of other income). Opex dipped 2.5% QoQ (+14.1% YoY) as a result

of a 11.2% QoQ de-growth in staff costs (+13.2% YoY). This was optical as KMB

made (one-off) higher provisions for retirement benefits in 2Q. Consequently, the

C-I ratio dipped 392bps QoQ to 46% (-112bps YoY).

Subsidiaries: The share of standalone profits in cosolidated PAT decreased

further to 66.5% (-260/-140bps) as they fell on a/c of higher provisions. Most subs

registered a QoQ decline in PAT, except for K-Sec (8.6% of consol. PAT, +47/27%)

and KMI (4% of consol. PAT, +5/20%). K-Prime continued to see a dip in

advances (Rs 248.6bn, -12/-4%). The proportion of KMI’s and KMP’s loans under

moratorium were lower than that of KMB’s (standalone). KMI and KMP

provided Rs 140mn (24bps of loans) and 500mn (20bps of loans) resp. towards

the impact of COVID-19 in 4Q.

Fund-raise: We have factored in a fund-raise of ~Rs 77bn at Rs 1,185/share into

our estimates. While this would be RoAE dilutive, it is not necessarily

undesirable. It would (1) partly resolve the promoter stake issue and (2)

strengthen the bank’s already strong b/s. The promoter is required to bring down

stake (~30%) to ~26% by Jul-20. Against this backdrop, the potential fund-raise

would result in a ~1% reduction in promoter stake. The remaining mandated

reduction may be achieved through a stake sale, inorganice growth or any

combination of these methods incl. a fund-raise.

Page | 3


SOTP

Rs bn Per Share Rationale

KM Mahindra Bank – Standalone 1,953 987 3.0x Mar-22E core ABV of Rs 330

Kotak Mahindra Prime - Car Finance 163 83 2.0x Mar-22E core NW

Kotak Mahindra Investments – LAS 45 23 2.0x Mar-22E core NW

Kotak Securities – Broking 91 46 18x Mar-22E Earnings

Kotak Mahindra AMC - Asset

Management 139 71 8% of FY22E AUM

Kotak Life - Life Insurance 257 130 FY21 EV + 20x FY22E VNB

KMCC - Investment Banking 11 6 2.0x Mar-22E core NW

Kotak Alternative Assets 11 5 7.5% of FY22E AUM

Offshore Funds 11 5 5% of FY22E AUM

Total Value of Subsidiaries 728 368

Less : 20% Holding Co. Discount 146 74

Total SOTP Value 2,532 1,282

Current Value 2,346 1,186

Upside (%) 8.1% 8.1%

Source: Bank, HSIE Research

Change In Estimates

Rs mn FY21E FY22E

Old New Change Old New Change

NII 139,958 151,568 8.3% 154,443 166,163 7.6%

PPOP 102,715 111,714 8.8% 112,069 120,359 7.4%

PAT 61,915 62,892 1.6% 66,601 71,273 7.0%

ABV (Rs) 255 293 14.7% 295 330 12.1%


Page | 4


Five quarters at a glance


Rs mn 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 YoY

Growth

QoQ

Growth

Income statement

Net interest income 30,479 31,730 33,496 34,295 35,597 16.8% 3.8%

Non-Interest income 12,703 13,047 12,244 13,414 14,894 17.2% 11.0%

Fee income 11,870 11,500 11,620 11,360 12,700 7.0% 11.8%

Operating income 43,182 44,778 45,740 47,710 50,490 16.9% 5.8%

Operating expenses 20,359 20,789 20,654 23,829 23,238 14.1% -2.5%

PPOP 22,823 23,989 25,086 23,881 27,253 19.4% 14.1%

Provision expense 1,713 3,168 4,079 4,440 10,475 511.6% 135.9%

NPA & std. asset prov. 2,397 2,726 3,977 4,320 3,737 55.9% -13.5%

PBT 21,110 20,822 21,006 19,441 16,778 -20.5% -13.7%

Tax expense 7,032 7,220 3,762 3,482 4,112 -41.5% 18.1%

PAT 14,078 13,602 17,245 15,959 12,666 -10.0% -20.6%

Balance Sheet items

Deposits (Rs bn) 2,259 2,329 2,331 2,394 2,628 16.4% 9.8%

CASA (%) 52.5 50.7 53.6 53.7 56.2 367 bps 247 bps

Advances (Rs bn) 2,057 2,080 2,133 2,168 2,197 6.8% 1.4%

CV and CE (%) 9.6 9.6 9.2 8.8 8.8 -82 bps 0 bps

Agri finance (%) 13.1 12.5 12.7 12.8 13.1 -4 bps 29 bps

Mortgage loans (%) 19.8 20.3 20.8 21.2 21.3 154 bps 10 bps

Small biz., PL/CC (%) 16.1 16.2 16.3 16.4 15.6 -52 bps -83 bps

Corp + biz. Banking (%) 38.9 39.1 38.6 38.5 38.6 -33 bps 13 bps

Others (%) 2.4 2.3 2.3 2.3 2.6 16 bps 31 bps

CD ratio (%) 91.1 89.3 91.5 90.6 83.6 -745 bps -695 bps

CAR (%) 17.5 17.8 18.2 18.2 17.9 40 bps -30 bps

Tier I (%) 16.9 17.3 18.0 17.7 17.3 40 bps -40 bps

Profitability (%)

Calc. yield on advances 9.90 10.03 10.04 9.77 9.68 -22 bps -9 bps

Calc. cost of funds 5.36 5.35 5.25 5.03 4.58 -77 bps -45 bps

NIM 4.48 4.49 4.61 4.69 4.72 24 bps 3 bps

Cost-income ratio 47.1 46.4 45.2 49.9 46.0 -112 bps -392 bps

Tax rate 33.3 34.7 17.9 17.9 24.5 -880 bps 660 bps

Asset Quality

Gross NPA (Rs bn) 44.7 46.1 50.3 54.1 50.3 12.5% -7.1%

Net NPA (Rs bn) 15.4 15.2 18.1 19.3 15.6 0.9% -19.1%

Gross NPA (%) 2.14 2.19 2.32 2.46 2.25 11 bps -21 bps

Net NPA (%) 0.75 0.73 0.85 0.89 0.71 -4 bps -18 bps

Slippages (% ann.) 1.81 1.45 1.90 1.98 0.90 -91 bps -108 bps

Coverage ratio (%) 65.4 67.0 64.0 64.4 69.0 357 bps 457 bps

SMA II (%) 0.07 0.16 0.20 0.13 0.04 -2 bps -8 bps

QoQ non-interest income

growth was surprising

The QoQ dip in opex was

on a/c of an 11.2% QoQ

dip in staff costs as the

base qtr incl. one off

provisions of Rs 2bn as a

result of change in

actuarial assumptions.

Non-tax provisions

jumped as KMB made

COVID-19 related

provisions of Rs 6.5bn

CASA ratio is the highest

in the industry

KMB intends to raise

funds, we have factored a

fund-raise of ~R77bn @ Rs

1,185/share into our

estimates

Cost of SA- 5.23% (-43/-

4bps)

Standstill classification

impact on slippages and

GNPL (Rs 6.6bn)

Page | 5


Standalone loan growth slows to just 6.8% YoY Consol advances grew ~2.6% YoY

Source: Company, HSIE Research


Standalone loan book split: Share of agri and mortgages on the rise; CC dips

(%) 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20

CV/CE 7.3 7.5 8.0 8.0 8.0 8.3 9.0 9.1 9.2 9.2 9.6 9.6 9.2 8.8 8.8

Agri 13.7 12.8 13.9 13.0 12.9 12.9 13.5 12.0 12.1 12.1 13.1 12.5 12.7 12.8 13.1

Mortgage 19.4 19.4 19.2 19.3 19.3 19.5 19.1 19.2 19.5 19.5 19.8 20.3 20.8 21.2 21.3

Small

Biz/PL/CC 12.6 12.2 12.8 12.8 13.7 14.4 14.8 14.8 15.7 15.8 16.1 16.2 16.3 16.4 15.6

Corp + Biz

Banking 44.5 45.8 43.8 44.7 44.0 42.7 41.5 42.8 41.4 41.2 38.9 39.1 38.6 38.5 38.6

Others 2.5 2.4 2.3 2.2 2.1 2.2 2.1 2.1 2.0 2.2 2.4 2.3 2.3 2.3 2.6

Consol. loan book split: Share of agri and mortgages on the rise

(%) 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20

CV /CE 5.9 6.1 6.5 6.5 6.5 6.8 7.4 7.5 7.7 7.7 8.1 8.1 7.9 7.6 7.7

Agri 11.2 10.5 11.4 10.6 10.5 10.5 11.1 10.0 10.1 10.2 11.1 10.6 10.9 11.1 11.5

Auto 11.3 11.1 11.0 10.5 10.6 10.2 9.8 9.5 9.4 8.7 8.3 8.0 7.7 7.2 7.0

Mortgage 15.9 15.9 15.6 15.6 15.7 15.8 15.7 15.9 16.2 16.5 16.7 17.2 17.8 18.4 18.8

Small

Biz/PL/CC 10.3 10.0 10.4 10.4 11.1 11.7 12.2 12.3 13.1 13.4 13.6 13.8 14.0 14.2 13.7

Corp + Biz

Banking 40.0 41.1 39.6 39.9 39.7 38.9 38.2 39.5 38.7 38.8 37.1 37.6 37.4 37.5 37.7

Others 5.3 5.3 5.6 6.4 5.8 6.0 5.6 5.2 4.9 4.7 5.1 4.7 4.3 4.0 3.6


1,2

08

1,2

60

1,2

93

1,3

61

1,4

24

1,5

26

1,5

91

1,6

97

1,7

69

1,8

49

1,9

64

2,0

57

2,0

80

2,1

33

2,1

68

2,1

97

-

5.0

10.0

15.0

20.0

25.0

30.0

-

500

1,000

1,500

2,000

2,500

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

SL Loans (LHS) YoY (%)Rs bn %

1,4

70

1,5

41

1,5

78

1,6

71

1,7

55

1,8

78

1,9

57

2,0

60

2,1

34

2,2

22

2,3

28

2,4

35

2,4

50

2,4

87

2,5

02

2,4

99

-

5.0

10.0

15.0

20.0

25.0

30.0

0

500

1,000

1,500

2,000

2,500

3,000

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

CL Loans (Rs bn) YoY (%)Rs bn %

Page | 6


KMP: total advances Dip 12/4 QoQ LAS customer assets dip sharply QoQ (18%)

Source: Bank, HSIE Research Source: Bank, HSIE Research

Strong deposit growth at 16.4% YoY CASA growth at 24.5% YoY leads deposit growth



Deposits Break-up : Strong QoQ Growth in SA ; CASA ratio – highest amongst peers (%) 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20

CA 15.6 16.2 17.6 17.0 15.5 14.3 16.7 15.1 15.0 14.8 17.2 15.7 16.4 15.4 16.4

SA 23.4 25.8 26.4 26.9 32.3 32.3 34.0 35.1 35.3 35.9 35.3 35.0 37.2 38.3 39.8

TD 61.0 58.0 56.0 56.1 52.2 53.3 49.2 49.7 49.8 49.3 47.5 49.3 46.4 46.3 43.8


NIMs expand 24bps YoY to 4.72% Strong QoQ fee income growth



(20.0)(15.0)(10.0)(5.0)-5.0 10.0 15.0 20.0 25.0 30.0

0

50

100

150

200

250

300

350

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

Total Loans Car Loans

Total Loans YoY - RHS Car Loans YoY - RHS

Rs bn %

48

.7

55

.3

59

.6

69

.1

65

.0

72

.3

77

.6

79

.0

77

.1

79

.6

79

.2 92

.4

90

.3

78

.3

71

.5

58

.8

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

Rs bn

1,4

00

1,4

10

1,4

94

1,5

74

1,6

35

1,6

57

1,8

08

1,9

26

1,8

97

2,0

58

2,1

38

2,2

59

2,3

29

2,3

31

2,3

94

2,6

28

-

5.0

10.0

15.0

20.0

25.0

30.0

0

500

1,000

1,500

2,000

2,500

3,000

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

Deposits (LHS) YoY (%)Rs bn %

52

4

55

0

62

8

69

3

71

8

79

2

84

4

97

8

95

4

1,0

34

1,0

84

1,1

86

1,1

81

1,2

49

1,2

85

1,4

76

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

-

200

400

600

800

1,000

1,200

1,400

1,600

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

CASA (LHS) YoY % Rs bn %

3.9

4.0

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

-

2.0

4.0

6.0

8.0

10.0

12.0

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

Calc YoA Calc CoF NIM RHS% %

-

0.5

1.0

1.5

2.0

2.5

3.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

Fee income (Rs bn) % of loans (RHS)

Page | 7


Fees drive QoQ non-income growth

Rs mn 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20

Fees 6,300 7,250 7,570 8,050 8,100 8,290 10,100 9,890 10,190 10,380 11,870 11,500 11,620 11,360 12,700

% Of loans 2.04 2.27 2.28 2.31 2.20 2.13 2.46 2.28 2.25 2.18 2.36 2.22 2.21 2.11 2.33

Total 8,311 9,102 10,030 9,070 9,540 10,400 11,510 11,650 12,050 9,640 12,703 13,050 12,244 13,414 14,890

% of Total inc 29.4 30.7 31.7 28.8 29.2 30.3 30.8 31.1 30.9 24.7 29.4 29.1 26.8 28.1 29.5

% of Avg.

Assets 1.73 1.83 1.93 1.65 1.65 1.71 1.79 1.74 1.72 1.14 1.45 1.66 1.55 1.68 1.74


Standalone asset quality improves Consol. asset quality improves marginally QoQ



KMI’s NNPAs improve

Source : Bank, HSIE Research

-

0.5

1.0

1.5

2.0

2.5

3.0

-

10.0

20.0

30.0

40.0

50.0

60.0

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

GNPA (LHS) NNPA (LHS)

GNPA (%) NNPA (%)Rs bn%

-

0.5

1.0

1.5

2.0

2.5

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

GNPA (LHS) NNPA (LHS)

GNPA (%) NNPA (%)Rs bn %

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1Q

FY

17

2Q

FY

17

3Q

FY

17

4Q

FY

17

1Q

FY

18

2Q

FY

18

3Q

FY

18

4Q

FY

18

1Q

FY

19

2Q

FY

19

3Q

FY

19

4Q

FY

19

1Q

FY

20

2Q

FY

20

3Q

FY

20

4Q

FY

20

KMP KMI%

Page | 8


Consol. PAT contribution: Share of subs increases YoY/QoQ (%) 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20

PAT Rs bn 12.0 12.7 14.0 13.5 14.4 16.2 17.9 15.7 17.5 18.4 20.4 19.3 24.1 23.5 19.1

KMB 67.2 69.5 69.5 67.8 69.0 64.8 62.8 65.1 65.4 70.0 69.1 70.4 71.6 67.9 66.5

KMP 10.8 10.5 9.5 9.8 10.4 9.1 8.9 8.8 9.0 7.5 8.0 7.9 7.1 8.0 8.5

Invest. Co. (LAS) 4.4 3.8 4.0 3.3 3.8 3.1 5.3 3.0 2.6 2.2 3.6 3.3 2.8 2.7 4.0

K Sec 7.9 6.7 8.6 9.3 8.2 9.5 7.5 8.3 6.4 5.4 5.4 5.7 6.2 5.4 8.6

Kotak AMC 0.6 1.3 0.9 1.1 1.6 2.3 2.2 3.2 3.0 4.1 3.7 3.8 3.5 3.9 4.6

KMCC (IB) 0.4 0.6 0.8 0.4 (0.1) 2.2 1.4 1.6 0.8 0.2 1.0 2.3 0.0 1.7 (0.4)

Kotak Life 5.2 5.4 7.2 7.6 6.9 6.0 6.4 7.4 7.3 6.8 6.8 6.9 6.0 7.1 8.7

International Sub. 2.6 1.7 1.5 1.3 1.9 2.0 2.1 2.1 2.7 2.0 1.6 1.5 1.4 1.1 1.6

Investment Adv. 0.1 (0.7) (0.9) (0.1) (0.1) 0.7 0.1 1.8 0.7 0.6 0.7 0.9 0.9 1.3 0.4

MI 0.8 1.3 (1.1) (0.5) (1.7) 0.2 3.2 (1.4) 2.2 1.2 0.0 (2.7) 0.4 0.9 (2.4)

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

KMP snapshot: AUM downtrend continues Rs bn 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20

Total Loans 233 235 251 276 284 288 280 279 285 279 283 277 273 259 249

YoY (%) 16.5 7.4 12.8 24.5 21.7 22.7 11.5 1.0 0.6 (3.1) 0.9 (0.6) (4.4) (7.4) (12.0)

Car Loans 172 173 182 184 198 200 201 204 207 202 203 196 190 180 175

YoY (%) 9.5 5.3 8.8 9.1 15.0 15.4 10.6 10.9 4.6 1.1 0.8 (4.0) (8.2) (10.9) (13.8)

% of total loans 74.0 73.8 72.4 66.5 69.9 69.3 71.8 73.0 72.7 72.4 71.7 70.5 69.8 69.6 70.3

NII 2.5 2.6 2.7 2.7 2.8 2.9 2.8 2.7 2.7 2.7 2.9 3.0 3.1 3.1 3.1

YoY (%) 4.2 6.5 7.3 12.4 11.7 8.7 5.7 (0.4) (3.6) (4.2) 4.3 10.3 14.7 13.9 7.2

Calc. NIM (%) 4.3 4.5 4.4 4.1 3.9 4.0 3.9 3.9 3.8 3.9 4.2 4.3 4.4 4.7 4.9

Total Income 30.8 31.0 33.0 32.9 34.0 34.7 35.4 32.8 35.5 33.0 37.7 36.2 36.9 37.7 41.2

YoY (%) 3.4 4.4 8.6 11.9 10.4 11.9 7.3 (0.3) 4.4 (4.9) 6.5 10.4 3.9 14.2 9.3

PBT 2.0 2.0 2.0 2.0 2.3 2.3 2.4 2.1 2.4 2.1 2.4 2.4 2.3 2.5 2.0

YoY (%) 1.5 5.2 1.0 10.9 15.7 11.3 20.2 5.4 3.9 (5.8) (1.6) 9.8 (1.7) 17.4 (15.4)

PAT 1.3 1.3 1.3 1.3 1.5 1.5 1.6 1.4 1.6 1.4 1.6 1.5 1.7 1.9 1.6

YoY (%) 2.4 5.6 2.3 10.0 15.4 11.3 20.3 5.3 4.7 (6.1) 2.5 10.1 9.6 34.5 (1.8)

NNPA (Rs mn) 979.1 657.0 904.4 995.1 1,163.3 1,152.0 1,036.7 1,088.4 1,141.8 1,200.0 1,243.8 1,498.4 1,528.7 1,577.2 1,491.8

NNPA (%) 0.42 0.28 0.36 0.36 0.41 0.40 0.37 0.39 0.40 0.43 0.44 0.54 0.56 0.61 0.60


Kotak Sec snapshot: Strong PAT growth Rs mn. 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20

K Sec Vol. (bn) 73.3 87.4 104.3 109.8 124.1 150.3 158.4 143.7 341.7 380.8 189.0 212.1 NA NA NA

M-Share (%) 2.3 2.2 2.2 1.9 1.9 2.0 1.9 1.7 2.5 2.9 2.6 1.7 1.7 1.6 1.7

Total Income 2,940 2,870 3,660 3,650 3,510 4,520 4,480 4,150 4,070 3,630 3,960 4,110 4,070 4,090 4,630

YoY (%) 8.9 25.9 62.7 53.4 19.4 57.5 22.4 13.7 16.0 (19.7) (11.6) (1.0) - 12.7 16.9

Yield (calc.) 0.07 0.05 0.06 0.06 0.05 0.05 0.05 0.05 0.02 0.02 0.03 0.03 NA NA NA

PBT 1,440 1,250 1,820 1,870 1,770 2,310 2,010 1,960 1,690 1,490 1,650 1,680 1,810 1,710 2,180

YoY (%) 20.0 50.6 142.7 103.3 22.9 84.8 10.4 4.8 (4.5) (35.5) (17.9) (14.3) 7.1 14.8 32.1

PAT 960 850 1,210 1,250 1,180 1,540 1,340 1,300 1,120 990 1,110 1,100 1,490 1,280 1,630

YoY (%) 23.1 54.5 137.3 108.3 22.9 81.2 10.7 4.0 (5.1) (35.7) (17.2) (15.4) 33.0 29.3 46.8

Page | 9


Kotak AMC snapshot: Average AUM up 24/5% Rs mn 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20

AUM (Rs bn) 1,207 1,331 1,413 1,522 1,692 1,829 1,825 1,992 1,994 2,032 2,253 2,368 2,420 2,630 2,258

Debt (%) 42.9 44.7 43.1 44.2 41.6 39.2 36.8 40.0 39.0 39.0 39.0 39.0 37.0 38.0 42.0

Equity (%) 16.0 16.8 19.6 21.3 23.9 25.6 26.8 26.0 27.0 29.0 28.0 29.0 30.0 30.0 26.0

Alt assets (%) 9.0 8.2 5.1 4.3 3.6 3.0 2.7 3.0 3.0 3.0 5.0 5.0 6.0 6.0 7.0

Offshore Funds

(%) 17.3 16.5 17.4 15.6 16.9 18.0 18.9 17.0 17.0 16.0 14.0 13.0 13.0 12.0 10.0

Insurance (%) 14.2 13.0 13.7 13.0 12.3 12.1 12.7 12.0 12.0 12.0 12.0 12.0 13.0 13.0 14.0

PMS (%) 0.6 0.8 1.1 1.5 1.7 2.0 2.1 2.0 2.0 1.0 2.0 2.0 1.0 1.0 1.0

PBT 110 240 200 210 340 570 580 770 790 1150 1160 1110 1040 1220 1170

YoY (%) (54.2) 84.6 (37.5) (27.6) 209.1 137.5 190.0 266.7 132.4 101.8 100.0 44.2 31.6 6.1 0.9

PAT 70 160 130 150 230 380 390 510 520 760 750 730 850 910 880

YoY (%) (69.6) 300.0 (48.0) (21.1) 228.6 137.5 200.0 240.0 126.1 100.0 92.3 43.1 63.5 19.7 17.3


K M Investment (LAS) snapshot: NNPAs see sharp QoQ dip Rs mn 2Q FY17 3Q FY17 4Q FY17 1Q FY18 2Q FY18 3Q FY18 4Q FY18 1Q FY19 2Q FY19 3Q FY19 4Q FY19 1Q FY20 2Q FY20 3Q FY20 4Q FY20

Customer Assets 55,320 59,590 69,050 65,000 72,300 77,620 79,000 77,050 79,550 79,150 92,420 90,300 78,280 71,470 58,750

YoY (%) 37.5 25.2 44.0 33.4 30.7 30.3 14.4 18.5 10.0 2.0 17.0 17.2 (1.6) (9.7) (36.4)

NII 720 740 770 730 760 770 780 720 610 680 920 870 890 870 1000

YoY (%) 14.3 5.7 8.5 9.0 5.6 4.1 1.3 (1.4) (19.7) (11.7) 17.9 20.8 45.9 27.9 8.7

Calc. NIM (%) 5.5 5.2 4.8 4.4 4.4 4.1 4.0 3.7 3.1 3.4 4.3 3.8 4.2 4.6 6.1

Total Income 930 850 1,000 800 1,000 930 1,530 880 850 800 1,350 1,140 1,120 1,090 1,190

YoY (%) 36.8 16.4 17.6 11.1 7.5 9.4 53.0 10.0 (15.0) (14.0) (11.8) 29.5 31.8 36.3 (11.9)

PBT 760 710 830 690 840 770 1380 740 700 610 1110 940 870 840 1030

YoY (%) 38.2 18.3 10.7 13.1 10.5 8.5 66.3 7.2 (16.7) (20.8) (19.6) 27.0 24.3 37.7 (7.2)

PAT 530 480 560 450 550 500 950 480 450 400 730 630 670 640 770

YoY (%) 47.2 23.1 12.0 12.5 3.8 4.2 69.6 6.7 (18.2) (20.0) (23.2) 31.3 48.9 60.0 5.5

NNPA 66.4 53.6 48.3 58.5 43.4 38.8 7.9 - 31.8 372.0 268.0 577.9 665.4 929.1 393.6

NNPA (%) 0.12 0.09 0.07 0.09 0.06 0.05 0.01 - 0.04 0.47 0.29 0.64 0.85 1.30 0.67


Peer set comparison

MCap

(Rs

bn)

CMP

(Rs) Rating

TP

(Rs)

ABV (Rs) P/E (x) P/ABV (x) ROAE (%) ROAA (%)

FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E

AUBANK 121 399 ADD 549 124 137 163 19.5 19.1 15.7 3.11 2.82 2.37 16.6 13.3 14.1 1.61 1.35 1.39

AXSB# 1,168 414 BUY 541 268 292 341 68.5 12.0 9.0 1.48 1.35 1.15 2.1 10.4 12.4 0.19 0.98 1.20

CUBK 96 130 BUY 176 66 72 83 12.6 12.7 11.8 1.97 1.80 1.57 14.6 12.7 12.1 1.61 1.47 1.43

DCBB 22 72 ADD 114 94 101 116 6.2 5.9 5.5 0.77 0.71 0.62 11.0 10.4 10.2 0.96 0.92 0.90

FB 86 43 BUY 71 65 67 77 5.3 5.2 5.0 0.67 0.65 0.56 11.5 10.8 10.2 0.95 0.89 0.84

ICICIBC# 2,186 338 BUY 442 155 173 201 18.0 9.9 7.9 1.42 1.24 1.05 6.3 10.9 12.1 0.77 1.23 1.39

IIB 318 448 ADD 575 459 512 575 7.0 10.8 7.6 0.98 0.88 0.78 14.7 8.1 10.2 1.51 0.93 1.21

KMB# 2,347 1,187 ADD 1,282 240 292 330 28.9 29.2 24.8 3.74 3.17 2.71 13.6 11.6 11.1 1.78 1.67 1.75

KVB 20 25 REDUCE 33 56 53 62 8.3 5.0 4.3 0.44 0.46 0.40 3.7 6.0 6.9 0.33 0.53 0.59

RBK 62 122 REDUCE 136 185 194 215 12.2 12.7 7.5 0.66 0.63 0.57 5.6 4.5 7.2 0.60 0.53 0.84

SBIN# 1,554 174 BUY 316 179 183 227 3.6 2.9 2.2 0.36 0.35 0.27 7.0 8.2 9.6 0.43 0.50 0.60

Source: Company, HSIE Research, # Adjusted for subsidiaries value

Page | 10


Financials Income statement

(Rs mn) FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

Interest earned 97,199 163,842 176,989 197,485 239,432 269,296 288,733 310,076

Interest expended 54,961 94,838 95,728 102,168 126,842 134,300 137,165 143,913

Net interest income 42,237 69,004 81,261 95,317 112,590 134,997 151,568 166,163

Other income 20,285 26,122 34,772 40,522 46,040 53,721 57,126 61,521

Fee income (CEB) 12,263 17,644 21,207 27,645 33,908 37,797 38,950 41,977

Treasury income 3,148 2,132 4,416 2,123 709 1,750 2,750 2,750

Total income 62,522 95,126 116,033 135,839 158,630 188,718 208,694 227,684

Total operating expenses 32,547 54,715 56,185 64,257 75,148 88,509 96,980 107,325

Employee expense 14,667 28,170 27,685 29,502 31,836 38,776 43,880 48,919

PPOP 29,975 40,411 59,848 71,582 83,482 100,208 111,714 120,359

Provisions & contingencies 1,645 9,174 8,367 9,400 9,624 22,162 27,667 25,113

Prov. For NPAs (Incl. Std Prov.) 2,582 7,478 7,004 7,375 9,589 21,260 28,167 25,613

PBT 28,330 31,237 51,481 62,182 73,858 78,047 84,046 95,246

Tax expenses 9,670 10,339 17,366 21,339 25,205 18,575 21,154 23,973

PAT 18,660 20,898 34,115 40,843 48,653 59,472 62,892 71,273


Statement of assets and liabilities

(Rs mn) FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

Sources of funds

Share Capital 3,862 9,172 9,204 9,528 9,544 9,565 9,890 9,890

Reserves 137,579 230,419 266,956 365,288 414,440 475,588 611,224 678,046

Shareholders' funds 141,441 239,591 276,161 374,817 423,984 485,153 621,114 687,936

Savings deposits 140,361 294,947 415,039 655,292 796,847 1,046,090 1,203,004 1,353,379

Current deposits 131,813 232,817 277,608 322,458 389,010 430,130 451,637 474,218

Term deposits 476,429 858,666 881,611 948,683 1,072,947 1,151,990 1,224,160 1,314,428

Total deposits 748,603 1,386,430 1,574,259 1,926,433 2,258,804 2,628,210 2,878,800 3,142,025

Borrowings 121,497 209,787 210,973 251,563 327,504 384,962 327,222 278,143

Other liabilities 48,580 86,790 84,507 96,521 111,430 104,192 114,611 126,072

Total Liabilities 1,060,121 1,922,598 2,145,900 2,649,334 3,121,721 3,602,517 3,941,747 4,234,176

Application of funds

Cash & bank balances 62,624 108,760 225,720 196,201 246,755 532,923 628,109 587,191

Investments 286,591 512,602 450,742 645,623 711,891 750,515 820,077 878,007

G-Secs 228,817 407,610 361,899 517,577 580,630 619,060 676,518 722,666

Advances 661,607 1,186,653 1,360,821 1,697,179 2,056,948 2,197,482 2,360,616 2,623,591

Fixed assets 12,067 15,516 15,376 15,272 16,516 16,231 17,043 17,895

Other assets 37,232 99,067 93,240 95,059 89,611 105,365 115,902 127,492

Total assets 1,060,121 1,922,598 2,145,900 2,649,334 3,121,721 3,602,517 3,941,747 4,234,176


Page | 11


Key Ratios

FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

Valuation ratios

EPS (Rs) 24.2 11.4 18.5 21.4 25.5 31.1 31.8 36.0

Earnings growth (%) 24.2 12.0 63.2 19.7 19.1 22.2 5.8 13.3

BVPS (Rs) 176.0 126.4 145.3 183.7 208.9 248.2 308.7 342.5

Core ABVPS (Rs) 168.1 119.5 136.0 175.0 200.8 240.0 292.2 329.7

DPS (Rs) 0.5 0.5 0.6 0.8 0.8 0.0 0.8 0.9

RoAA (%) 1.94 1.41 1.68 1.72 1.70 1.78 1.67 1.75

RoAE (%) 14.7 11.4 13.7 13.2 13.0 13.6 11.6 11.1

P/E (x) 38.0 92.8 55.4 42.1 33.7 28.9 29.2 24.8

P/ABV (x) 5.45 8.84 7.55 5.15 4.28 3.74 3.17 2.71

P/PPOP (x) 15.3 26.9 18.2 15.8 13.6 11.3 10.5 9.7

Dividend Yield (%) 0.0 0.0 0.1 0.1 0.1 - 0.1 0.1

Profitability ratios (%)

Yield on advances 12.53 13.49 10.52 9.63 9.79 9.87 9.62 9.47

Yield on investments 7.88 8.65 7.64 7.17 7.18 7.19 7.10 7.10

Cost of funds 6.91 7.69 5.66 5.16 5.32 4.80 4.41 4.34

Cost of deposits 6.84 7.37 5.56 5.11 5.26 4.98 4.27 4.23

Core spread 5.62 5.80 4.86 4.48 4.46 5.07 5.21 5.12

NIM 4.73 4.41 4.39 4.32 4.20 4.29 4.30 4.37

Operating efficiency (%)

Cost/avg. asset ratio 3.4 3.7 2.8 2.7 2.6 2.6 2.6 2.6

Cost-income ratio (excl. treasury) 54.8 58.8 50.3 48.1 47.6 47.3 47.1 47.7

Balance sheet structure ratios (%)

Loan growth 24.8 79.4 14.7 24.7 21.2 6.8 7.4 11.1

Deposit growth 26.7 85.2 13.5 22.4 17.3 16.4 9.5 9.1

C/D ratio 88.4 85.6 86.4 88.1 91.1 83.6 82.0 83.5

Equity/assets 13.3 12.5 12.9 14.1 13.6 13.5 15.8 16.2

Equity/advances 21.4 20.2 20.3 22.1 20.6 22.1 26.3 26.2

CASA 36.4 38.1 44.0 50.8 52.5 56.2 57.5 58.2

Capital adequacy ratio (CAR) 17.2 16.3 16.8 18.2 17.5 17.9 20.3 20.4

W/w Tier I CAR 16.2 15.2 15.9 17.6 16.9 17.3 20.0 20.2

Asset quality

Gross NPLs (Rs bn) 12.4 28.4 35.8 38.3 44.7 50.3 87.3 88.1

Net NPLs (Rs bn) 6.1 12.6 17.2 16.7 15.4 15.6 32.7 25.4

Gross NPLs (%) 1.9 2.4 2.6 2.2 2.1 2.3 3.7 3.4

Net NPLs (%) 0.9 1.1 1.3 1.0 0.8 0.7 1.4 1.0

Slippages (%) 1.3% 3.1% 1.4% 1.2% 1.1% 1.6% 2.8% 2.1%

Coverage ratio (%) 50.8 55.5 52.0 56.5 65.4 69.0 62.5 71.2

Provision/avg. loans (%) 0.4 0.8 0.5 0.5 0.5 1.00 1.24 1.03

RoAA Tree

Net interest income 4.36% 4.63% 3.99% 3.98% 3.90% 4.02% 4.02% 4.06%

Non-interest income 2.10% 1.75% 1.71% 1.69% 1.60% 1.60% 1.51% 1.50%

Treasury income 0.33% 0.14% 0.22% 0.09% 0.02% 0.05% 0.07% 0.07%

Operating cost 3.36% 3.67% 2.76% 2.68% 2.60% 2.63% 2.57% 2.63%

Provision costs 0.17% 0.62% 0.41% 0.39% 0.33% 0.66% 0.73% 0.61%

Provisions For NPAs 0.20% 0.47% 0.30% 0.26% 0.29% 0.42% 0.73% 0.60%

Tax expense 1.00% 0.69% 0.85% 0.89% 0.87% 0.55% 0.56% 0.59%

RoAA 1.93% 1.40% 1.68% 1.70% 1.69% 1.77% 1.67% 1.74%

Leverage (x) 7.33 7.83 7.89 7.37 7.22 7.40 6.82 6.25

RoAE 14.13% 10.97% 13.23% 12.55% 12.18% 13.08% 11.37% 10.89%


Page | 12


Rating Criteria

BUY: >+15% return potential

ADD: +5% to +15% return potential

REDUCE: -10% to +5% return potential

SELL: > 10% Downside return potential

Date CMP Reco Target

2-May-19 1,387 BUY 1,481

9-Jul-19 1,475 BUY 1,481

22-Jul-19 1,454 NEU 1,531

22-Sep-19 1,539 NEU 1,584

9-Oct-19 1,612 NEU 1,638

23-Oct-19 1,614 NEU 1,622

9-Jan-20 1,655 NEU 1,690

21-Jan-20 1,618 NEU 1,681

2-Mar-20 1,620 ADD 1,725

15-Apr-20 1,173 ADD 1,263

20-Apr-20 1,178 ADD 1,263

14-May-20 1,186 ADD 1,282

From 2nd March 2020, we have moved to new rating system

RECOMMENDATION HISTORY

1,100

1,200

1,300

1,400

1,500

1,600

1,700

1,800

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Sep

-19

Oct

-19

No

v-1

9

Dec

-19

Jan

-20

Feb

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Ma

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Kotak Mahindra Bank TP

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