Kotak Mahindra Bank BUY - Moneycontrol.comstatic-news.moneycontrol.com/.../10/Kotak_Mahindra... · Kotak Mahindra Bank 25 October 2017 JM Financial Institutional Securities Limited

JM Financial Institutional Securities Limited

JM Financial Research is also available on: Bloomberg - JMFR <GO>,

Thomson Publisher & Reuters S&P Capital IQ and FactSet

Please see Appendix I at the end of this

report for Important Disclosures and Disclaimers and Research Analyst Certification.

Kotak’s consolidated profits for 2QFY18 were up 20% YoY and were in-line with our

estimates. Growth in customer assets, which had picked up in the previous quarter, sustained

in 2QFY18 with 21% YoY growth (22% YoY in consolidated loan book) and management

commentary on growth outlook remains confident. Key positives during the quarter were a)

significant decline in cost-to-income ratio (down ~200bps YoY) despite additional

expenditure pertaining to ‘811’ and priority sector certificates, b) Strong SA growth of +61%

YoY driven by government business, and c) management disclosure that Post-IFRS networth

of the bank will be higher than under the current accounting methodology. Subsidiaries, too,

showed healthy growth especially on life insurance, asset management and retail securities

businesses. After nearly eight quarters of single-digit growth, Kotak prime delivered 15%

YoY PAT growth with nearly 8% sequential growth in car loans. Despite rich valuations, we

like Kotak for its clean asset quality, diversified presence and encouraging growth trends. We

maintain our BUY rating on the stock with unchanged TP.

Growth pick up looks sustainable: Growth pick-up witnessed in 1QFY18 sustained during

the quarter. Corporate banking portfolio (incl. credit substitutes) grew over 26.5% in

2QFY18 and within the retail banking book CV/CE (33% YoY) and personal loans/credit

cards (32% YoY) portfolio continued to drive growth. Management indicated it continues

to gain market share in the corporate banking segment but remains commited for

lending to well-rated names. Growth in business banking continued to languish in single-

digit given management’s cautious stance on lending to small businesses post

demonetization and impact of GST-rollout. Management re-iterated its growth guidance

of 20% YoY for FY18E.

Operating parameters continue to remain stable: SA growth was strong at 61% YoY (SA

balance : INR 535bn) on the back of inflows from government agency deposits, which

had benefitted IIB as well in 2QFY18. However, even ex-government deposits, core SA

growth was robust at >40% YoY. Bank added over a million customers in the quarter

with significant help from digital (811) and its customer base now stands at 10.5mn. NIM

was down 17bps sequentially at 4.33% as wholesale yields faced pressure from

competition and bond market disintermediation. Management continued to guide for

sustainable NIMs at 4.25%. Cost-to-income was down c.220bps sequentially to 47.2%

and management guided that it has further headroom for reduction as the banks’ PSLC

shortfall continues to decrease and further synergies are squeezed out of the ING

branches.

Asset quality marginally improves; Premium valuations to sustain: Asset quality continues

to be healthy, with sequential improvement across GNPA ratio (down 11bps to 2.47%),

SMA2 book (0.04%) and restructured loans (0.16%). We do not anticipate any material

worsening in asset quality. Encouraging growth trends, controlled opex and full playout

of merger synergies will continue to drive near term outperformance.

Sameer Bhise [email protected] | Tel: (91 22) 66303489

Jayant Kharote [email protected] | Tel: (91 22) 66303099

S Parameswaran [email protected] | +91 22 66303075

Karan Singh CFA FRM [email protected] | Tel: (91 22) 66303082

Nikhil Walecha [email protected] | Tel: (91 22) 66303027

Bunny Babjee [email protected] | Tel: (91 22) 66303263

Recommendation and Price Target

Current Reco. BUY

Previous Reco. BUY

Current Price Target (12M) 1,075

Upside/(Downside) 6.5%

Previous Price Target 1,075

Change 0.0%

Key Data – KMB IN

Current Market Price INR1011

Market cap (bn) INR1,923.9/$29.6

Free Float 58.7%

Shares in issue (mn) 1,903.79

Diluted share (mn) 1,903.79

3-mon avg daily val (mn) INR1,970.1/US$30.4

52-week range 1115/692

Sensex/Nifty 33,043/10,295

Rs/US$ 64.9

Price Performance % 1M 6M 12M

Absolute 1.7 12.2 24.5

Relative* -2.8 1.9 6.9

* To the BSE Sensex

Kotak Mahindra Bank | BUY

25 October 2017 India | Private Sector Banks | Company Update

2QFY18 - Growth sustains

Financial Summary (Consolidated) (Rs mn)

Y/E March FY15A FY16A FY17A FY18E FY19E

Net Profit 30.5 34.6 49.4 59.9 74.8

Net Profit (YoY) (%) 23.5 13.6 42.8 21.2 24.9

Assets (YoY) (%) 21.5 62.1 14.7 18.8 19.5

ROA (%) 2.2 1.8 1.9 2.0 2.1

ROE (%) 14.8 12.5 13.8 13.5 13.9

EPS 19.7 18.9 26.8 31.5 39.3

EPS (YoY) (%) 23.2 -4.4 42.3 17.2 24.9

PE (x) 51.2 53.6 37.6 32.1 25.7

BV 143.4 181.9 209.1 263.3 301.6

BV (YoY) (%) 15.8 26.8 15.0 25.9 14.5

P/BV (x) 7.0 5.6 4.8 3.8 3.3

Source: Company data, JM Financial. Note: Valuations as of 25/Oct/2017

Kotak Mahindra Bank 25 October 2017

JM Financial Institutional Securities Limited Page 2

KMB - 2QFY18 Trends

KMB 2Q18: Results Summary (Standalone) Exhibit 1.

Earnings Table (Rs mn) 2Q'17 1Q'18 2Q'18 YoY (%) QoQ (%)

NII 19,954 22,456 23,127 15.9% 3.0%

Fee based Income 6,300 8,050 8,100 28.6% 0.6%

Trading Profits 2,010 1,272 1,622 -19.3% 27.5%

Non-Interest income 8,311 9,069 9,539 14.8% 5.2%

Total Income 28,265 31,524 32,665 15.6% 3.6%

Employee Cost 6,995 7,062 7,230 3.4% 2.4%

Other Operating Expenses 6,869 8,509 8,188 19.2% -3.8%

Total Operating Expenses 13,864 15,571 15,417 11.2% -1.0%

Operating Profit 14,401 15,954 17,248 19.8% 8.1%

Loan Loss Provisions 1,415 1,928 2,055 45.2% 6.6%

Provisions on Investments(AFS) 562 109 111 NM NM

Other Provisions 0 0 0 na na

Total Provisions 1,978 2,037 2,165 9.5% 6.3%

PBT 12,423 13,916 15,083 21.4% 8.4%

Tax 4,290 4,789 5,140 19.8% 7.3%

PAT (Pre-Extraordinaries) 8,133 9,127 9,943 22.3% 8.9%

Extraordinaries (Net of Tax) 0 0 0 0.0% 0.0%

Reported Profit 8,133 9,127 9,943 22.3% 8.9%

Balance sheet (Rs bn)

Deposits 1,410.5 1,635.2 1,656.7 17.5% 1.3%

Net Advances 1,260.2 1,423.6 1,525.7 21.1% 7.2%

Total Assets 1,950.6 2,263.9 2,369.7 21.5% 4.7%

Low-cost Deposits (%) 39.0% 43.9% 47.8% 8.8% 3.9%

Loan-Deposit ratio (%) 89.3% 87.1% 92.1% 2.8% 5.0%

Key Ratios

Credit Quality

Gross NPAs (Rs. mn.) 31,807 37,266 38,142 19.9% 2.3%

Net NPAs (Rs. mn.) 15,168 17,779 19,188 26.5% 7.9%

Gross NPA (%) 2.49% 2.58% 2.47% -0.02% -0.11%

Net NPA (%) 1.20% 1.25% 1.26% 0.05% 0.01%

Loan Loss Provisions (%) 0.48% 0.59% 0.59% 0.11% 0.00%

Coverage Ratio (%) 52.3% 52.3% 49.7% -2.6% -2.6%

Capital Adequacy

Tier I (%) 15.70% 18.40% 17.60% 1.90% -0.80%

CAR (%) 16.80% 19.20% 18.40% 1.60% -0.80%

Du-pont Analysis

NII / Assets (%) 4.15% 4.07% 3.99% -0.15% -0.08%

Non-Interest Inc. / Assets (%) 1.73% 1.65% 1.65% -0.08% 0.00%

Operating Cost / Assets (%) 2.88% 2.82% 2.66% -0.22% -0.16%

Operating Profits / Assets (%) 2.99% 2.89% 2.98% -0.02% 0.08%

Provisions / Assets (%) 0.41% 0.37% 0.37% -0.04% 0.00%

ROA (%) 1.69% 1.66% 1.72% 0.03% 0.06%



KMB 2Q18: Results Summary (Consolidated) Exhibit 2.

Earnings Table (Rs mn) 2Q'17 1Q'18 2Q'18 YoY (%) QoQ (%)

NII 26,642 30,045 30,853 15.8% 2.7%

Fee based Income 10,042 12,164 12,830 27.8% 5.5%

Trading Profits 2,129 1,272 1,622 -23.8% 27.5%

Treasury Profits/losses (Insurance) 5,399 3,548 3,038 -43.7% -14.4%

Insurance premium 11,243 9,771 13,253 17.9% 35.6%

Non-Interest income 28,813 26,755 30,742 6.7% 14.9%

Total Income 55,455 56,800 61,594 11.1% 8.4%

Employee Cost 10,138 10,255 10,604 4.6% 3.4%

Policyholder reserves 15,497 12,236 14,501 -6.4% 18.5%

Total Operating Expenses 9,840 11,984 12,223 24.2% 2.0%

Operating Profit 19,981 22,325 24,267 21.4% 8.7%

Loan Loss Provisions 1,644 2,219 2,222 35.1% 0.1%

Provisions on Investments(AFS) 535 103 306 -42.7% -396.8%

Total Provisions 2,179 2,322 2,529 16.0% 8.9%

PBT 17,802 20,003 21,738 22.1% 8.7%

Tax 5,852 6,638 7,113 21.5% 7.2%

PAT (Pre-Extraordinaries) 11,950 13,365 14,625 22.4% 9.4%

Associate profits/Minority interest 74 103 -219 0.0% 0.0%

Reported Profit 12,024 13,468 14,407 19.8% 7.0%

Balance sheet (Rs bn)

Net Advances 1,540.8 1,754.7 1,877.6 21.9% 7.0%

Total Assets 2,492.9 2,901.8 3,048.8 22.3% 5.1%

Key Ratios

Credit Quality

Gross NPAs (Rs. mn.) 33,955 39,737 40,654 19.7% 2.3%

Net NPAs (Rs. mn.) 16,222 18,815 20,361 25.5% 8.2%

Gross NPA (%) 2.18% 2.24% 2.14% -0.04% -0.10%

Net NPA (%) 1.05% 1.07% 1.08% 0.03% 0.01%

Loan Loss Provisions (%) 0.46% 0.55% 0.52% 0.06% -0.03%

Coverage Ratio (%) 52.2% 52.7% 49.9% -2.3% -2.7%

Capital Adequacy

Tier I (%) 16.50% 16.50% 16.50% 0.00% 0.00%

CAR (%) 17.30% 17.30% 17.30% 0.00% 0.00%

Du-pont Analysis

NII / Assets (%) 4.35% 4.24% 4.15% -0.21% -0.10%

Non-Interest Inc. / Assets (%) 4.71% 3.78% 4.13% -0.58% 0.35%

Operating Cost / Assets (%) 5.80% 4.87% 5.02% -0.78% 0.15%

Operating Profits / Assets (%) 3.27% 3.15% 3.26% 0.00% 0.11%

Provisions / Assets (%) 2.91% 2.83% 2.92% 0.01% 0.10%

ROA (%) 1.97% 1.90% 1.94% -0.03% 0.03%

Source: Company, JM Financial



Valuation

Our Jun’18 TP of Rs1,075 is based on SOTP, valuing parent at 3.7x one year fwd BV

implying standalone value of Rs817 and value of subsidiaries net of cost of investments

at Rs258.

SOTP Valuation of KMB: Jun’18 TP Exhibit 3.KMB SOTP Holding Valuation Methodology Value Contribution

(%)

per Share to TP (%)

Kotak - Parent Bank 100% 3.7x 1 yr fwd BV 817 76%

Kotak Prime 100% 3x 1 yr fwd BV 87 8%

Kotak Life 100% Appraisal Value 61 6%

Kotak Securities 100% 13x FY19 PAT 24 2%

Kotak Capital 100% 10x FY19 PAT 3 0%

Kotak MF 100% 4.5% of FY19 AUM 30 3%

Kotak Invst Advisors 100% 15% of AUM 19 2%

Kotak Investments 100% 2.75x FY19 P/BV 22 2%

Kotak International subsidiaries 100% 1.5x FY19 P/BV 16 2%

Less: Cost of investments 100%

-5 0%

Total (Rs) 1,075 100%


KMB 2Q18: One year forward P/BV (x) (consol) Exhibit 4.

Source: Bloomberg, JM Financial

KMB 2Q18: One year forward P/E (x) (consol) Exhibit 5.

Source: Bloomberg, JM Financial

0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5

8.5

Oct

-06

Oct

-07

Oct

-08

Oct

-09

Oct

-10

Oct

-11

Oct

-12

Oct

-13

Oct

-14

Oct

-15

Oct

-16

Oct

-17

KMB Fwd. P/BV (x) (cons) SD+1 SD-1 Average

4

14

24

34

44

54

64

74

Oct

-06

Oct

-07

Oct

-08

Oct

-09

Oct

-10

Oct

-11

Oct

-12

Oct

-13

Oct

-14

Oct

-15

Oct

-16

Oct

-17

KMB Fwd. P/E (x) (cons) SD+1 SD-1 Average



Key Trends for 2QFY18

KMB 2Q18: Gross loan mix (as per internal classification) Exhibit 6.

Loans Break-up - Standalone (Rs bn) 2Q'17 1Q'18 2Q'18 YoY (%) QoQ (%)

CV & CE 92 114 122 33.1% 6.7%

Agriculture Advances (Net) 173 186 197 14.1% 6.3%

Mortgage Loans 244 275 294 20.4% 7.2%

SBL, PL and CC 159 183 209 31.6% 14.3%

Business Banking 174 175 181 4.3% 3.3%

Corporate Banking 387 460 490 26.5% 6.4%

Others 31 31 32 2.1% 4.9%

Net Advances 1260 1424 1526 21.1% 7.2%

CV & CE 7.3% 8.0% 8.0% 0.7% 0.0%

Agriculture Advances (Net) 13.7% 13.0% 12.9% -0.8% -0.1%

Mortgage Loans 19.4% 19.3% 19.3% -0.1% 0.0%

SBL, PL and CC 12.6% 12.8% 13.7% 1.1% 0.9%

Business Banking 13.8% 12.3% 11.9% -1.9% -0.4%

Corporate Banking 30.7% 32.3% 32.1% 1.4% -0.2%

Others 2.5% 2.2% 2.1% -0.4% 0.0%

Net Advances 100% 100% 100%

Source: JM Financial, Company

Deposit mix (%) (standalone) Exhibit 7.

Deposits Composition (Rs bn) 2Q'17 1Q'18 2Q'18 YoY (%) QoQ (%)

Current 220 277 257 16.9% -7.2%

Saving 330 440 535 61.9% 21.5%

Time 860 918 864 0.5% -5.8%

Total Deposits 1,410 1,635 1,657 17.5% 1.3%

Current 15.6% 17.0% 15.5% -0.1% -1.4%

Saving 23.4% 26.9% 32.3% 8.9% 5.4%

CASA 39.0% 43.9% 47.8% 8.8% 3.9%

Time 61.0% 56.1% 52.2% -8.8% -3.9%

Total 100% 100% 100%

Source: JM Financial, Company

KMB 2Q18: SA accretion (standalone bank) Exhibit 8.


0%

2%

4%

6%

8%

10%

12%

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

SA accretion as a % of opening deposits



KMB 2Q18: Break up of Consolidated profits (Rs mn) Exhibit 9.

PAT- Other Subsidiaries (Rs mn) 2Q'17 1Q'18 2Q'18 YoY (%) QoQ (%)

Kotak Bank 8,133 9,127 9,943 22.3% 8.9%

Kotak Mahindra Prime 1,300 1,320 1,500 15.4% 13.6%

Kotak Securities 960 1,250 1,180 22.9% -5.6%

Kotak Mahindra Capital Company 50 50 -10 NM NM

Kotak Mahindra Old Mutual Life Insurance 630 1,030 1,000 58.7% -2.9%

Kotak Mahindra AMC & Trustee Co 70 150 230 228.6% 53.3%

International subsidiaries 310 170 280 -9.7% 64.7%

Kotak Investment Advisors 10 0 0 NM NM

Kotak Mahindra Investments 530 450 550 3.8% 22.2%

Total 11,993 13,547 14,673 22.3% 8.3%

Minority interest, Equity Affiliates, Others 30 -80 -260 NM 225.0%

Consolidated PAT 12,023 13,467 14,413 19.9% 7.0%


KMB 2Q18: Trends for CASA and NIM (standalone) Exhibit 10.

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

CASA (%) (LHS) NII / Assets (%)


KMB 2Q18: Core cost ratios continue to improve (standalone) Exhibit 11.

45%

50%

55%

60%

65%

70%

75%

80%

85%

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

Core cost to income (Standalone) Core cost to income (Consol)




KMB 2Q18: Overall cost ratios were stable (standalone) Exhibit 12.

2.4%

2.8%

3.2%

3.6%

4.0%

4.4%

4.8%

40%

45%

50%

55%

60%

65%

70%

75%

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

Op. Cost / Assets (%) Cost to Income (%) (LHS)


KMB 2Q18: GNPL maintained its 4Q17 level Exhibit 13.(standalone)


KMB 2Q18: Impaired assets continue to be stable Exhibit 14.(standalone)


KMB 2Q18: KMB remains adequately capitalised (consolidated) Exhibit 15.

17.2% 16.5% 16.7% 17.0% 17.3% 17.3% 18.0%17.2%

19.5% 19.2%

0%

5%

10%

15%

20%

25%

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18

Tier 1 ratio Tier 2


40%

44%

48%

52%

56%

60%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

Gross NPLs (%), LHS Net NPLs (%), LHS Coverage (%), RHS

3.1% 3.1%2.9%

3.3%3.2% 3.1%

2.8% 2.9% 2.9%2.7%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18

GNPLs (%) Total restructured (%) Other Impaired (%) Watchlist/SMA-2



Financial Tables (Consolidated)

Profit & Loss (Rs bn)


Net Interest Income 63.5 92.8 108.7 128.3 149.9

Profit on Investments 24.4 0.8 20.7 24.0 26.7

Insurance premium 29.8 39.1 51.4 60.6 71.5

Exchange Income 2.1 4.9 5.6 6.4 7.6

Fee & Other Income 25.3 31.5 39.0 47.9 58.5

Non-Interest Income 81.5 76.3 116.6 138.9 164.3

Total Income 145.0 169.1 225.3 267.2 314.2

Operating Expenses 97.5 108.9 142.5 167.6 190.5

Pre-provisioning Profits 47.6 60.2 82.8 99.6 123.7

Loan-Loss Provisions 3.2 8.4 7.9 9.3 11.0

Provisions on Investments -1.2 1.4 1.5 0.4 0.5

Others Provisions 0.1 0.1 0.1 0.1 0.1

Total Provisions 2.1 9.9 9.5 9.8 11.5

PBT 45.5 50.2 73.3 89.9 112.2

Tax 14.8 15.9 23.8 29.9 37.3

PAT (Pre-Extraordinaries) 30.7 34.3 49.5 60.0 74.9

Extra ordinaries (Net of Tax) 0.0 0.0 0.0 0.0 0.0

Profit share of minority interest 0.6 0.7 0.8 0.8 0.8

Share in profits of Associates 0.4 0.9 0.7 0.7 0.7

Reported Profits 30.5 34.6 49.4 59.9 74.8

Dividend paid 1.0 1.1 1.3 1.7 2.0

Retained Profits 29.5 33.5 48.1 58.2 72.8


Key Ratios


Growth (YoY) (%)

Deposits 28.0 86.6 14.4 20.0 23.0

Advances 23.6 63.4 15.4 16.0 20.0

Total Assets 21.5 62.1 14.7 18.8 19.5

NII 12.0 46.1 17.1 18.1 16.9

Non-interest Income 32.4 16.6 33.2 18.6 17.6


Operating Profits 18.8 26.5 37.7 20.3 24.2

Core Operating profit -31.6 156.4 4.6 21.8 28.3

Provisions -33.4 381.9 -4.3 2.9 18.0

Reported PAT 23.5 13.6 42.8 21.2 24.9

Yields / Margins (%)

Interest Spread 2.4 2.6 2.7 3.0 3.0

NIM 4.9 4.9 4.4 4.5 4.5

Profitability (%)

Non-IR to Income 56.2 45.1 51.8 52.0 52.3

Cost to Income 67.2 64.4 63.2 62.7 60.6

ROA 2.2 1.8 1.9 2.0 2.1

ROE 14.8 12.5 13.8 13.5 13.9

Assets Quality (%)

Gross NPA 1.6 2.1 2.2 2.3 2.2

Net NPAs 0.8 0.9 1.1 1.0 0.9

Provision Coverage 49.9 55.1 52.3 57.5 60.9

Specific LLP 0.3 0.6 0.4 0.4 0.4

Net NPAs / Networth 3.1 4.1 4.7 3.8 3.5

Capital Adequacy (%)

Tier I 16.8 16.1 16.5 18.0 17.4

CAR 17.6 17.0 17.2 18.7 17.9


Balance Sheet (Rs bn)


Equity Capital 3.9 9.2 9.2 9.5 9.5

Reserves & Surplus 217.7 324.4 375.7 491.6 564.4

Deposits 728.4 1,359.5 1,555.4 1,866.5 2,295.8

Borrowings 314.1 437.3 496.9 545.9 627.0

Minority Interest 3.4 4.0 4.7 5.7 6.8

Policyholder's Funds 137.9 151.5 187.9 216.1 248.5

Other Liabilities 80.4 122.2 132.0 145.2 167.0

Total Liabilities 1,486 2,408 2,761.9 3,280.5 3,919.0

Investments 473.5 702.7 684.6 821.9 923.2

Net Advances 886.3 1,447.9 1,671.2 1,938.6 2,326.4

Cash & Equivalents 69.0 176.0 255.9 300.2 360.4

Fixed Assets 13.8 17.6 17.6 20.7 23.6

Other Assets 43.1 63.8 132.6 199.0 285.4

Total Assets 1,486 2,408 2,761.9 3,280.5 3,919.0


DuPont Analysis


NII / Assets 4.7 4.8 4.2 4.2 4.2

Other Income / Assets 6.0 3.9 4.5 4.6 4.6

Total Income / Assets 10.7 8.7 8.7 8.8 8.7

Cost / Assets 7.2 5.6 5.5 5.5 5.3

PBP / Assets 3.5 3.1 3.2 3.3 3.4

Provisions / Assets 0.2 0.5 0.4 0.3 0.3

PBT / Assets 3.4 2.6 2.8 3.0 3.1

Tax rate 32.6 31.7 32.5 33.3 33.3

ROA 2.2 1.8 1.9 2.0 2.1

RoRWAs 2.7 2.1 2.3 2.4 2.5

Leverage 6.6 7.0 7.2 6.8 6.7

ROE 14.8 12.5 13.8 13.5 13.9


Valuations


Shares in Issue 1,544.7 1,834.4 1,840.9 1,902.9 1,902.9

EPS (INR) 19.7 18.9 26.8 31.5 39.3

EPS (YoY) (%) 23.2 -4.4 42.3 17.2 24.9

PER (x) 51.2 53.6 37.6 32.1 25.7

BV (INR) 143 182 209 263 302

BV (YoY) (%) 15.8 26.8 15.0 25.9 14.5

P/BV (x) 7.0 5.6 4.8 3.8 3.3

DPS (INR) 0.6 0.6 0.7 0.9 1.1

Div. yield (%) 0.1 0.1 0.1 0.1 0.1




Financial Tables (Standalone)

Profit & Loss (Rs bn)


Net Interest Income 42.2 69.0 81.3 94.0 108.8

Profit on Investments 3.1 2.1 4.4 4.5 4.0

Exchange Income 2.1 4.2 5.3 6.9 8.9

Fee & Other Income 15.1 19.8 25.1 30.6 37.6

Non-Interest Income 20.3 26.1 34.8 41.9 50.5

Total Income 62.5 95.1 116.0 135.9 159.4


Pre-provisioning Profits 30.0 40.4 59.8 72.0 86.1

Loan-Loss Provisions 2.6 7.5 7.0 9.5 11.3

Provisions on Investments -1.1 1.4 1.4 1.2 0.0

Others Provisions 0.2 0.3 0.0 0.0 0.0

Total Provisions 1.6 9.2 8.4 10.7 11.3

PBT 28.3 31.2 51.5 61.3 74.8

Tax 9.7 10.3 17.4 21.1 25.7

PAT (Pre-Extraordinaries) 18.7 20.9 34.1 40.2 49.1

Extra ordinaries (Net of Tax) 0.0 0.0 0.0 0.0 0.0

Reported Profits 18.7 20.9 34.1 40.2 49.1

Dividend paid 1.0 1.1 1.3 1.6 1.9

Retained Profits 17.7 19.8 32.8 38.6 47.2


Key Ratios


Growth (YoY) (%)

Deposits 26.7 85.2 13.5 17.0 18.0

Advances 24.8 79.4 14.7 20.0 19.0

Total Assets 21.0 81.4 11.6 18.1 16.4

NII 13.5 63.4 17.8 15.6 15.8

Non-interest Income 44.9 28.8 33.1 20.6 20.5


Operating Profits 16.3 34.8 48.1 20.3 19.6

Core Operating profit 7.5 45.8 43.0 22.8 21.7

Provisions -46.0 457.7 -8.8 28.2 5.4

Reported PAT 24.2 12.0 63.2 17.9 22.1

Yields / Margins (%)

Interest Spread 3.6 3.0 3.5 3.6 3.6

NIM 4.6 3.9 4.2 4.3 4.3

Profitability (%)

Non-IR to Income 32.4 27.5 30.0 30.9 31.7

Cost to Income 52.1 57.5 48.4 47.0 45.9

ROA 1.9 1.1 1.7 1.7 1.8

ROE 14.1 9.2 13.2 12.4 12.4

Assets Quality (%)

Slippages 1.4 4.4 1.5 1.5 1.5

Gross NPA 1.9 2.4 2.6 2.4 2.2

Net NPAs 0.9 1.1 1.3 1.1 0.9

Provision Coverage 50.8 55.5 52.0 54.8 58.1

Specific LLP 0.3 0.6 0.5 0.6 0.6

Net NPAs / Networth 4.3 5.3 6.2 4.7 4.4

Capital Adequacy (%)

Tier I 16.2 15.3 15.9 18.3 17.8

CAR 17.2 16.3 16.8 19.0 18.5


Balance Sheet (Rs bn)


Equity Capital 3.9 9.2 9.2 9.5 9.5

Reserves & Surplus 137.5 230.4 267.0 363.3 410.5

Deposits 748.6 1,386.4 1,574.3 1,841.9 2,173.4

Borrowings 121.5 209.8 211.0 222.9 245.8

Other Liabilities 48.6 86.8 84.5 97.2 111.8

Total Liabilities 1,060.1 1,922.6 2,145.9 2,534.8 2,951.0

Investments 286.6 512.6 450.7 546.4 631.8

Net Advances 661.6 1,186.7 1,360.8 1,633.0 1,943.3

Cash & Equivalents 62.6 108.8 225.7 177.7 183.3

Fixed Assets 12.1 15.5 15.4 16.9 18.8

Other Assets 37.2 99.0 93.2 160.9 173.9

Total Assets 1,060.1 1,922.6 2,145.9 2,534.8 2,951.0


Dupont Analysis


NII / Assets 4.4 3.8 4.0 4.0 4.0

Other Income / Assets 2.1 1.4 1.7 1.8 1.8

Total Income / Assets 6.5 5.2 5.7 5.8 5.8

Cost / Assets 3.4 3.0 2.8 2.7 2.7

PBP / Assets 3.1 2.2 2.9 3.1 3.1

Provisions / Assets 0.2 0.5 0.4 0.5 0.4

PBT / Assets 2.9 1.7 2.5 2.6 2.7

Tax rate 34.1 33.1 33.7 34.4 34.4

ROA 1.9 1.1 1.7 1.7 1.8

RoRWAs 2.5 1.4 2.1 2.2 2.3

Leverage 7.3 8.0 7.9 7.2 6.9

ROE 14.1 9.2 13.2 12.4 12.4


Valuations


Shares in Issue 1,544.7 1,834.4 1,840.9 1,902.9 1,902.9

EPS (INR) 12.1 11.4 18.5 21.1 25.8

EPS (YoY) (%) 23.9 -5.7 62.7 14.0 22.1

PER (x) 83.6 88.7 54.5 47.8 39.2

BV (INR) 91.5 130.6 150.0 195.9 220.7

BV (YoY) (%) 14.9 42.7 14.9 30.6 12.7

P/BV (x) 11.0 7.7 6.7 5.2 4.6

DPS (INR) 0.6 0.6 0.7 0.8 1.0

Div. yield (%) 0.1 0.1 0.1 0.1 0.1




History of Earnings Estimate and Target Price

Date FY18E

EPS (INR) % Chg.

FY19E

EPS (INR) % Chg.

Target

Price % Chg.

20-Jul-17 31.5 39.3 1,075

Recommendation History

B

0

200

400

600

800

1000

1200

Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17

Kotak Mahindra Bank

Target Price Kotak Mahindra Bank



APPENDIX I

JM Financial Inst itut ional Secur it ies Limited

Corporate Identity Number: U65192MH1995PLC092522 Member of BSE Ltd. and National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd.

SEBI Registration Nos.: BSE - INZ010012532, NSE - INZ230012536 and MSEI - INZ260012539, Research Analyst – INH000000610 Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India.

Board: +9122 6630 3030 | Fax: +91 22 6630 3488 | Email: [email protected] | www.jmfl.com

Compliance Officer: Mr. Sunny Shah | Tel: +91 22 6630 3383 | Email: [email protected]

Definition of ratings

Rating Meaning

Buy Total expected returns of more than 15%. Total expected return includes dividend yields.

Hold Price expected to move in the range of 10% downside to 15% upside from the current market price.

Sell Price expected to move downwards by more than 10%

Research Analyst(s) Certification The Research Analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report. Important Disclosures This research report has been prepared by JM Financial Institutional Securities Limited (JM Financial Institutional Securities) to provide information about the company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its associates solely for the purpose of information of the select recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written consent of JM Financial Institutional Securities. This report has been prepared independent of the companies covered herein.

JM Financial Institutional Securities is registered with the Securities and Exchange Board of India (SEBI) as a Research Analyst, Merchant Banker and a Stock Broker having trading memberships of the BSE Ltd. (BSE), National Stock Exchange of India Ltd. (NSE) and Metropolitan Stock Exchange of India Ltd. (MSEI). No material disciplinary action has been taken by SEBI against JM Financial Institutional Securities in the past two financial years which may impact the investment decision making of the investor.

JM Financial Institutional Securities provides a wide range of investment banking services to a diversified client base of corporates in the domestic and international markets. It also renders stock broking services primarily to institutional investors and provides the research services to its institutional clients/investors. JM Financial Institutional Securities and its associates are part of a multi-service, integrated investment banking, investment management, brokerage and financing group. JM Financial Institutional Securities and/or its associates might have provided or may provide services in respect of managing offerings of securities, corporate finance, investment banking, mergers & acquisitions, broking, financing or any other advisory services to the company(ies) covered herein. JM Financial Institutional Securities and/or its associates might have received during the past twelve months or may receive compensation from the company(ies) mentioned in this report for rendering any of the above services.

JM Financial Institutional Securities and/or its associates, their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) covered under this report or (c) act as an advisor or lender/borrower to, or may have any financial interest in, such company(ies) or (d) considering the nature of business/activities that JM Financial Institutional Securities is engaged in, it may have potential conflict of interest at the time of publication of this report on the subject company(ies).

Neither JM Financial Institutional Securities nor its associates or the Research Analyst(s) named in this report or his/her relatives individually own one per cent or more securities of the company(ies) covered under this report, at the relevant date as specified in the SEBI (Research Analysts) Regulations, 2014.

The Research Analyst(s) principally responsible for the preparation of this research report and members of their household are prohibited from buying or selling debt or equity securities, including but not limited to any option, right, warrant, future, long or short position issued by company(ies) covered under this report. The Research Analyst(s) principally responsible for the preparation of this research report or their relatives (as defined under SEBI (Research Analysts) Regulations, 2014); (a) do not have any financial interest in the company(ies) covered under this report or (b) did not receive any compensation from the company(ies) covered under this report, or from any third party, in connection with this report or (c) do not have any other material conflict of interest at the time of publication of this report. Research Analyst(s) are not serving as an officer, director or employee of the company(ies) covered under this report.

While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or developments referred to herein, and JM Financial Institutional Securities does not warrant its accuracy or completeness. JM Financial Institutional Securities may not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision. The investment discussed or views expressed or recommendations/opinions given herein may not be suitable for all investors. The user assumes the entire risk of any use made of this information. The information contained herein may be changed without notice and JM Financial Institutional Securities reserves the right

to make modifications and alterations to this statement as they may deem fit from time to time.



Documents

Kotak Mahindra Bank BUY - Moneycontrol.comstatic-news.moneycontrol.com/.../10/Kotak_Mahindra... · Kotak Mahindra Bank 25 October 2017 JM Financial Institutional Securities Limited