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24 October 2018 2QFY19 Results Update | Sector: Financials-Banks
Kotak Mahindra Bank
Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Research Analyst: Nitin Aggarwal ([email protected]); +91 22 3982 5540 | Parth Gutka ([email protected]); +91 22 3010 2746 Alpesh Mehta ([email protected]); +91 22 3982 5415 | Yash Agarwal ([email protected]); +91 22 3846 6693
BSE SENSEX S&P CNX CMP: INR1,177 TP: INR1,250 (+6%) Neutral 34,034 10,225 Bloomberg KMB IN Equity Shares (m) 1,906 M.Cap.(INRb)/(USDb) 2,244 / 32.0
52-Week Range (INR) 1424 / 983 1, 6, 12 Rel. Per (%) 7/1/6 Avg Val, INRm 2774 Free float (%) 70.0
Financials & Valuations (INR b) Y/E MARCH FY18 FY19E FY20E NII 95.3 110.3 135.1 OP 71.6 85.7 106.5 NP 40.8 47.0 59.3 Cons. NP 62.0 71.1 87.3 NIM (%) 4.3 4.1 4.3 EPS (INR) 21.8 24.7 31.1 EPS Gr. (%) 17.4 13.2 26.0 BV. (INR) 196.7 220.4 250.5 ABV. (INR) 177.6 200.0 227.6 Cons. BV. (INR) 264.9 302.0 347.0 Cons. ABV. (INR) 253.5 291.2 335.4 Cons. RoE (%) 13.9 13.2 14.1 RoE (%) 12.5 11.8 13.2 RoA (%) 1.7 1.6 1.7 Valuations P/E(X) 37.3 33.0 26.2 P/BV (X) (Cons.) 4.4 3.9 3.4 P/ABV (X) (Cons.) 4.6 4.0 3.5 P/ABV (X) 4.6 4.1 3.6
Steady quarter, business momentum remains strong Standalone results: KMB’s PAT increased 15% YoY to INR11.4b (in-line) in
2QFY19. NII grew 16% YoY to INR26.9b, led by healthy loan growth of 21%YoY. Margins, however, contracted by 10bp to 4.2%. Based on our full-yearestimates, we believe KMB should deliver PAT of INR25.4b in 2HFY19(INR21.7b in 1HFY19).
Loan book grew 21% YoY (+4.5% QoQ), led by strong growth in retail loans(+28% YoY), while deposits increased by 24% YoY. SA deposit growth washealthy at 36% YoY (43% YoY on daily average basis), with incremental costof SA at 5.65%. Core deposit mix (CASA + TD less than INR50m) was at 79%.
Asset quality improved, with NNPLs declining by 1.7% QoQ as KMB madefurther provisions toward the business banking segment. GNPL/NNPL ratiosstood at 2.15%/0.81% (-2bp/-5bp), while PCR improved by 195bp QoQ to62.8%. SMA-2 advances stood at 9bp of loans.
Subsidiary performance remains mixed: Net profit increased by 27% YoY atKotak Life and by 126% YoY in Kotak AMC off a low base. Kotak Prime andSecurities, however, reported muted trends. Share of the bank inconsolidated profit stood at 65%.
Other highlights: (a) Tier 1 ratio of 17.4% with total CAR of 18%. (b) KMB isreviewing its 811 strategy on account of the recent Supreme Courtnotification. (c) The bank is seeing good opportunities in the SME segmentand will look to grow as asset quality normalizes further.
Valuation and view: We fine-tune our earnings, and now estimate KMB todeliver 18% CAGR in consolidated earnings. We, thus, project KMB’s FY20consolidated RoA/RoE at 2.1%/14.1%. We continue believing in KMB’scapability to deliver in a challenging environment and appreciate theprogress the bank is making in building a strong liability franchise. Weexpect the bank to maintain traction in loan growth (FY18-20 CAGR at 21%)and gain market share across product segments with improving profitability. Maintain Neutral with a price target of INR1,250 (3.8x Mar-20E ABV).
Quarterly snapshot for Standalone bank (INR m) Y/E March FY18 FY19E FY18 FY19E 2Q V/s
1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE FY19E Our Est Net Interest Income 22,456 23,126 23,937 25,798 25,829 26,891 28,886 28,646 95,317 1,10,252 26,074 3% % Change (Y-o-Y) 17.0 15.9 16.7 19.4 15.0 16.3 20.7 11.0 17.3 15.7 12.7 353 Other Income 9,069 9,539 10,398 11,516 11,646 12,053 12,634 11,889 40,522 48,221 11,814 2% Total Income 31,525 32,665 34,335 37,314 37,475 38,944 41,520 40,535 1,35,839 1,58,473 37,888 3% Operating Expenses 15,571 15,417 16,135 17,134 17,150 17,994 19,057 18,536 64,257 72,737 17,308 4% Operating Profit 15,954 17,248 18,201 20,180 20,325 20,950 22,463 21,999 71,582 85,737 20,580 2% % Change (Y-o-Y) 21.3 19.8 19.1 18.6 27.4 21.5 23.4 9.0 19.6 19.8 19.3 214 Other Provisions 2,037 2,165 2,128 3,069 4,696 3,538 3,730 2,273 9,400 14,238 3,441 3% Profit before Tax 13,917 15,083 16,073 17,110 15,629 17,412 18,733 19,726 62,182 71,499 17,139 2% Net Profit 9,128 9,943 10,532 11,241 10,249 11,417 12,326 13,054 40,843 47,046 11,300 1% % Change (Y-o-Y) 23.0 22.3 19.7 15.1 12.3 14.8 17.0 16.1 19.7 15.2 13.6 117.3 Asset Quality Gross NPA (INR b) 37.3 38.1 37.1 38.3 39.0 40.3 40.9 41.8 38.3 41.8 40.0 1% Gross NPA (%) 2.6 2.5 2.3 2.3 2.2 2.2 2.0 2.0 2.3 2.0 2.1 3.4 Net NPA (INR b) 17.8 19.2 17.3 16.7 15.3 15.0 17.8 15.4 16.7 15.4 15.2 -1%Net NPA (%) 1.3 1.3 1.1 1.0 0.9 0.8 0.9 0.7 1.0 0.7 0.8 -0.3PCR (%) 52.3 49.7 53.5 56.5 60.8 62.8 56.5 63.1 56.5 63.1 62.1 68.9
Kotak Mahindra Bank
24 October 2018 2
Exhibit 1: Quarterly performance v/s our estimates (INRm) – In-line performance Kotak Bank (standalone) 2QFY19A 2QFY19E v/s Est. Comments Net Interest Income 26,891 26,074 3 Lower-than-expected interest expense lead to NII beat % Change (Y-o-Y) 16.3 12.7 Operating Profit 20,950 20,580 2 Better-than-expected other income led to PPoP beat % Change (Y-o-Y) 21.5 19.3 Net Profit 11,417 11,300 1 In-line; PPoP beat set off by miss on provisions % Change (Y-o-Y) 14.8 13.6
Source: MOSL, Company
Broad-based loan growth led by CV, personal loans and home loans Loans grew 21.2% YoY (4.5% QoQ) led by ~40% YoY (6.4% QoQ) growth in CV
loans, while personal loans credit card and small business grew 39.1% YoY(10.8% QoQ). Home loan and LAP grew 22.6% YoY (6.1% QoQ).
Corporate banking grew 18.5%/0.7% YoY/QoQ while business banking grew2.6% YoY as management was cautious on lending to the SME sector.
Composition of personal loans (as a % of total loans) increased to 15.7% (13.7%in 2QFY18) whereas business banking forms 10% of the total loan book.
Strong traction on CASA continues; SA forms 35% of total deposits SA deposits grew 35.7% YoY/9.0% QoQ whereas CA deposits grew 19.7% YoY. SA
deposits as a proportion of overall deposits stood at 35.3% (up 300bp YoY). Overall CASA ratio declined 10bp QoQ to 50.2%. CASA and TDs (below INR 50m)
constitutes 79% of the total deposits vs 77% a year ago. Weighted average SA rate for the quarter was 5.65%.
Asset quality ratio remains under control While the challenges continue in the economy, KMB reported strong asset
quality performance, with a decline in GNPL/NNPL ratio by 2bp/5bp on asequential basis to 2.15%/0.81% respectively.
PCR as on 2QFY19 stood at 62.8% (up 200bp QoQ). SMA 2 outstanding was at INR1.65b which corresponds to 9bp on advances (vs
11bp in 1QFY19).
Healthy performance in non-lending business Profitability in securities business came in at INR1.1b, down 5% YoY. K-Sec market share improved to 2.5% (vs 1.7% in 1QFY19). Asset management business reported growth of 2% QoQ in PAT at INR520m
while average AUM increased 22.3% YoY (+5% QoQ), led by strong inflows inequity AUM (+47.7% YoY).
Life insurance profit increased 27% YoY to INR1.3b led by 31% growth inpremium income.
Avg. SA balances for the quarter grew 43% YoY, whereas avg. CA balances for the quarter
increased 22% YoY
Proportion of equity AUM increased to 40.2% of
overall AUM v/s 33.3% in 2QFY18
Kotak Mahindra Bank
24 October 2018 3
Exhibit 2: Auto loans grew 4.6% YoY and 2% QoQ Exhibit 3: Domestic AUM increased 20% YoY
Exhibit 4: K-Sec: PAT declined 5% YoY to 1.1b Exhibit 5: K-Sec market share improved 80bp QoQ to 2.5%
Exhibit 6: Investment banking PAT came in at INR140m
Source: MOSL, Company
Exhibit 7: Kotak AMC: Equity AUMs trending higher (INRb)
Source: MOSL, Company
151
158
164
167
168
172
173
182 18
4 198
200
201
204
207
47
43 54
56
54
61
62
70 93
85
88
79
75
78
1QFY
16
1HFY
16
9MFY
16
FY16
1QFY
17
2QFY
17
3QFY
17
4QFY
17
1QFY
18
2QFY
18
3QFY
18
4QFY
18
1QFY
19
2QFY
19
Auto Loans (INR b) Other Loans (INR b)
44 42 39 37 40 39
21 24 26 27 26 27 2 1 2 2 2 2 16 17 18 19 17 17 4 4 3 3 3 3 13 12 12 13 17 12
1QFY
18
2QFY
18
3QFY
18
4QFY
18
1QFY
19
2QFY
19
Debt Equity PMSOffshore Funds Alternate assets Insurance
2.5
2.7
2.3
2.3
2.4
2.9
2.9
3.7
3.7
3.5
4.6
4.5
4.2
4.1
0.7
0.8
0.6
0.5
0.6
1.0
0.9
1.2
1.3
1.2 1.
5
1.3 1.
3
1.1
27 29
23 25
33 30
33 34 34 33 30 31
28
1QFY
16
2QFY
16
3QFY
16
4QFY
16
1QFY
17
2QFY
17
3QFY
17
4QFY
17
1QFY
18
2QFY
18
3QFY
18
4QFY
18
1QFY
19
2QFY
19Tot. Inc. PAT PATM (%) 2.7 2.7 2.7 2.6
2.4 2.3 2.2 2.21.9 1.9 2.0 1.9
1.7
2.5
1QFY
16
2QFY
16
3QFY
16
4QFY
16
1QFY
17
2QFY
17
3QFY
17
4QFY
17
1QFY
18
2QFY
18
3QFY
18
4QFY
18
1QFY
19
2QFY
19
210 29
0
280 36
0 520
250
260 34
0
270
150
760
620
560
430
30
70
60 17
0 230
50
70
110
50
-10
360
250
250
140
1QFY
16
2QFY
16
3QFY
16
4QFY
16
1QFY
17
2QFY
17
3QFY
17
4QFY
17
1QFY
18
2QFY
18
3QFY
18
4QFY
18
1QFY
19
2QFY
19
Tot. Inc. PAT
166 193
186
283 320 406
469 490 510 543
11 12 13 14 30 17 36 39 38 35 211 205
293
240 244 288 329 345 347 330
1QFY
17
2QFY
17
3QFY
17
4QFY
17
1QFY
18
2QFY
18
3QFY
18
4QFY
18
1QFY
19
2QFY
19
Eq. AUM PMS AUM Offshore AUM
Kotak Mahindra Bank
24 October 2018 4
Exhibit 8: Trend in composition of PAT
Source: Company, MOSL
Exhibit 9: Growth in standalone PAT v/s subsidiaries’ PAT
Source: Company, MOSL
2QFY19 Conference call highlights Business related Beginning to see some challenges in the financial sector after witnessing robust
growth in the non-banking financial sector. NBFCs’ loan book growth was much faster than industry growth. Easy money and cheaper short-term finance led to ALM mismatch. Steps to buyout portfolio and other steps taken by NHB should be positive. Going forward the focus would be on quality governance. Reviewing the 811 strategy on account of the recent Supreme Court notification
(it has been currently discontinued). No further development on the promoter divestment, discussion with RBI is
going on as communicated earlier. Mutual funds exposure toward NBFC increased in the recent year, leading to
more risk. Bank and insurance exposure was at controlled level. Volatility is expected in the coming weeks but does not see any systemic risk.
Balance sheet and P&L related Better pricing power and opportunities are available in terms of loan growth. Expects to maintain ~20% loan growth in the corporate segment. Curtailed some growth in Kotak Prime because pricing was not appropriate. Bank is open for portfolio buyouts. Funding mix is changing more toward retail TD from wholesale TD. SME: Some slippages are being witnessed and will wait for one more quarter for
things to normalize. Good demand is there from smaller SME and will look tocater to that.
Slippages: INR4.2b, recoveries/upgrades INR2b. Remains prudent on provisioning front. Risk return metrics are getting better and more appropriate. Marketing cost increased in 2QFY19 as 2QFY18 was subdued (major marketing
pertaining to 811 was done in 1QFY18). There is MCLR lag issue which should improve margins going ahead, bulk of
lending is 6months MCLR.
69.2% 67.7% 60.4% 69.1% 65.9% 66.2% 67.9%
30.8% 32.3% 39.6% 30.9% 34.1% 33.8% 32.1%
FY14
FY15
FY16
FY17
FY18
FY19
E
FY20
E
Kotak Bank PAT from subsidiaries
15%
-16%
63%
20% 15% 26% 23%
16% 12%
38%
13% 17%
FY15
FY16
FY17
FY18
FY19
E
FY20
E
Kotak Bank PAT from subsidiaries
Kotak Mahindra Bank
24 October 2018 5
Guidance Comfortable to maintain loan growth in 20s. Plans to add 100 branches in FY18-19 and will add more branches next year. Kotak Life: Unit linked proportion 25%, margins remain robust; term business is
at 9%.
Valuation and view Strong presence across products and healthy capitalization (Tier1 of 17.4%),
places the bank in a sweet spot to capitalize on growth opportunities and gainmarket share.
Emerging opportunities for mid-size private banks post demon coupled withhealthy capitalization leaves KMB in a strong position to capitalize. To leverageon its geographical expansion, the management is focusing on productpenetration with higher emphasis on agriculture (will help in priority sectorloans), small business loans (untapped opportunity; creating niche for itself) andmortgage loan.
Operating leverage is expected to kick in the expanded underutilized capacity.Higher refinancing opportunities, increased product offering on the combinednetwork, customer acquisition through 811 (though temporarily suspended onaccount of recent Supreme Court judgement), cross sell to existing customersand product penetration to IVBL customers, will keep loan growth healthy. Weexpect standalone PAT CAGR of 20% over FY18-20E, largely driven by stablemargins and operating leverage.
Capital light nature of capital market and asset management businesses canprovide upside to ROE if there is a strong improvement in business cycle. Greenshoots of the same are visible post demon. We expect consolidated ROEs toimprove to ~13-14% by FY20e on back strong improvement in banking business.
We fine-tune our earnings and estimate KMB to deliver 18% CAGR in consolearnings. We thus project KMB’s FY20E consolidated RoA/RoE at 2.1%/14.1%respectively. We continue to believe in KMB’s capability to deliver in achallenging environment and appreciate the progress the bank is making inbuilding a strong liability franchise. We expect KMB to maintain continuedtraction in loan growth (FY18-20E CAGR at 21%) and gain market share acrossproduct segments with improving profitability. Maintain Neutral with PT ofINR1,250 (3.8x Mar-20E ABV for the lending business).
Kotak Mahindra Bank
24 October 2018 6
Exhibit 10: Kotak Mahindra Bank (FY20-based) Stake
(%) Value
(INR B) Value
(USD B) INR per share % To Total Rationale
Lending Business 2,004 28.5 1,052 84 Kotak Mahindra Bank 1,690 24.1 887 71 3.8x FY20E Networth Kotak Prime (Car and other loans) 237 3.4 124 10 3.8x FY20E Networth Kotak Investment Company (LAS) 78 1.1 41 3 3.8x FY20E Networth Asset Management Business 146 2.1 77 6 6% of AUMs Domestic Mutual Fund 112 1.6 59 5 Alternative Assets 5 0.1 3 0 Offshore Funds 29 0.4 15 1 Capital Markets related Business 145 2.1 76 6 Kotak Securities 127 1.8 67 5 20x FY20E PAT
Kotak Investment Banking (KMCC) 18 0.3 9 1 2.5x FY20E Networth; corresponds to 20x FY20E PAT
Kotak Life Insurance 259 3.7 136 11 3.1x FY20E EV Subs value @ 20% discount 692 9.9 363 29 Target Value (Post 20% holding discount) 2,381 33.9 1,250 100
- contribution of subs/associates to total PT 29% Source: MOSL
Exhibit 11: KMB Group: Earnings Estimates (INR m) Business FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Kotak Mahindra Bank (Standalone) Banking Business 21,603 24,776 20,898 34,115 40,843 47,046 59,299 Kotak Mahindra Prime Auto loans, debt capital markets 4,907 5,077 5,025 5,150 5,896 6,554 7,537 Kotak Mahindra Investments Primarily LAS 420 1,060 1,540 1,960 2,445 2,803 3,435 Lending Business 26,930 30,913 27,463 41,225 49,184 56,403 70,271 International subsidiaries Asset management and inv. banking 70 520 1,050 860 811 1,069 1,351 Kotak Mahindra AMC & Trustee Co Mutual funds management 410 -290 720 560 812 1,096 1,370 Kotak Investment Advisors Alternate asset management 180 250 50 125 0 0 0 Asset Management Business 660 480 1,820 1,545 1,623 2,165 2,722 Kotak Securities Broking and distribution 1,600 2,900 2,510 3,610 5,310 5,681 6,363 Kotak Mahindra Capital Company Investment banking 140 130 320 460 653 751 901 Capital Market Business 1,740 3,030 2,830 4,070 5,962 6,432 7,264 Consol. PAT excluding Kotak Life 29,330 34,423 32,113 46,840 56,769 65,000 80,257 YoY Growth (%) 12 17 -7 46 21 14 23 Kotak OM Life Insurance Life insurance 2,390 2,290 2,510 3,030 4,130 4,791 5,557 Consolidation Adjust. -492 -142 -34 -466 1,110 1,275 1,515 Consol. PAT Including Kotak Life 31,228 36,571 34,589 49,404 62,010 71,066 87,329 YoY Growth (%) 11 17 -5 43 26 15 23
Source: Company, MOSL
Kotak Mahindra Bank
24 October 2018 7
Financials and valuations Income Statement (INR Million) Y/E March FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E Interest Income 1,29,041 1,39,722 1,55,677 1,63,842 1,76,989 1,97,485 2,37,884 2,85,360 Interest Expense 81,598 84,991 93,876 94,838 95,728 1,02,168 1,27,633 1,50,225 Net Interest Income 47,443 54,731 61,800 69,004 81,261 95,317 1,10,252 1,35,134 Growth (%) 27.5 15.4 12.9 11.7 17.8 17.3 15.7 22.6 Non Interest Income 18,875 22,668 29,119 26,122 34,772 40,522 48,221 56,901 Total Income 66,318 77,399 90,919 95,126 1,16,033 1,35,839 1,58,473 1,92,035 Growth (%) 23.5 16.7 17.5 4.6 22.0 17.1 16.7 21.2 Operating Expenses 34,825 40,353 48,711 54,715 56,185 64,257 72,737 85,493 Pre Provision Profits 31,493 37,046 42,208 40,411 59,848 71,582 85,737 1,06,542 Growth (%) 30.0 17.6 13.9 -4.3 48.1 19.6 19.8 24.3 Core Operating Profits 29,639 34,667 38,897 38,279 55,432 69,459 83,571 1,04,333 Provisions (excl tax) 2,758 4,545 4,723 9,174 8,367 9,400 14,238 16,421 PBT 28,735 32,501 37,486 31,237 51,481 62,182 71,499 90,121 Tax 8,998 10,898 12,710 10,339 17,366 21,339 24,453 30,821 Tax Rate (%) 31.3 33.5 33.9 33.1 33.7 34.3 34.2 34.2 PAT 19,737 21,603 24,776 20,898 34,115 40,843 47,046 59,299 Growth (%) 28.0 9.5 14.7 -15.7 63.2 19.7 15.2 26.0 Consolidated PAT 28,014 31,228 36,571 34,589 49,404 62,010 71,066 87,329 Growth (%) 22.4 11.5 17.1 -5.4 42.8 25.5 14.6 22.9
Balance Sheet Y/E March FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E Equity Share Capital 9,116 9,116 9,116 9,172 9,204 9,528 9,528 9,528 Reserves & Surplus 1,35,530 1,88,285 2,02,289 2,30,453 2,66,975 3,65,310 4,10,520 4,67,779 Net Worth 1,44,646 1,97,401 2,11,405 2,39,625 2,76,179 3,74,838 4,20,049 4,77,307 Deposits 9,23,628 10,02,891 12,40,148 13,86,430 15,74,259 19,26,433 22,44,294 26,84,176 Growth (%) 25.3 8.6 23.7 11.8 13.5 22.4 16.5 19.6 of which CASA Dep 2,83,534 3,25,865 4,12,995 5,27,770 6,92,647 9,77,750 11,51,323 14,03,824 Growth (%) 16.0 14.9 26.7 27.8 31.2 41.2 17.8 21.9 Borrowings 2,69,219 2,25,641 2,05,411 2,09,753 2,10,955 2,51,542 3,24,684 4,06,806 Other Liabilities & Prov. 47,809 54,053 76,235 86,790 84,507 96,522 1,15,826 1,38,991 Total Liabilities 13,85,301 14,79,986 17,33,198 19,22,598 21,45,900 26,49,334 31,04,852 37,07,280 Current Assets 65,226 1,18,060 97,457 1,08,797 2,25,720 1,96,201 1,66,984 1,94,732 Investments 4,71,517 4,22,053 5,13,313 5,12,602 4,50,742 6,45,623 7,37,717 8,55,751 Growth (%) 37.5 -10.5 21.6 -0.1 -12.1 43.2 14.3 16.0 Loans 8,02,410 8,88,565 10,69,718 11,86,653 13,60,821 16,97,179 20,72,256 24,99,141 Growth (%) 18.3 10.7 20.4 10.9 14.7 24.7 22.1 20.6 Fixed Assets 9,640 16,315 16,204 15,516 15,376 15,272 16,035 17,158 Other Assets 36,508 34,994 36,507 99,030 93,240 95,059 1,11,861 1,40,499 Total Assets 13,85,301 14,79,986 17,33,198 19,22,598 21,45,899 26,49,334 31,04,852 37,07,280
Asset Quality Y/E MARCH FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E GNPA (INR m) 13,283 17,037 22,884 28,381 35,786 38,254 41,771 44,886 NNPA (INR m) 3,205 6,756 10,722 12,620 17,181 16,651 15,406 15,661 GNPA Ratio 1.63 1.90 2.12 2.39 2.63 2.25 2.02 1.80 NNPA Ratio 0.40 0.76 1.00 1.06 1.26 0.98 0.74 0.63 Slippage Ratio 0.97 1.58 2.51 2.46 1.15 1.00 1.10 1.05 Credit Cost 0.33 0.27 0.62 0.76 0.48 0.41 0.54 0.50 PCR (Excl Tech. write off) 75.9 60.3 53.1 55.5 52.0 56.5 63.1 65.1 E: MOSL Estimates
Kotak Mahindra Bank
24 October 2018 8
Financials and valuations
Ratios (INR Million) Y/E March FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Yield and Cost Ratios (%) Avg. Yield-Earning Assets 11.0 10.5 10.5 12.0 9.6 9.0 8.9 9.1 Avg. Yield on loans 13.1 12.4 12.0 13.5 10.5 9.6 9.8 9.9 Avg. Yield on Investments 7.8 7.7 7.7 8.7 7.9 7.5 7.4 7.3 Avg. Cost-Int. Bear. Liab. 7.6 7.0 7.0 7.7 5.7 5.2 5.4 5.3 Avg. Cost of Deposits 7.1 6.8 6.8 7.4 5.6 5.1 5.5 5.5 Interest Spread 3.5 3.5 3.4 6.1 5.0 4.5 4.3 4.4 Net Interest Margin 4.1 4.1 4.2 5.1 4.4 4.3 4.1 4.3
Capitalisation Ratios (%) CAR 16.0 18.8 17.2 17.0 17.2 18.4 16.2 14.6 Tier I 14.7 17.8 16.2 16.1 16.5 17.8 16.2 15.1 Tier II 1.3 1.0 1.0 0.9 0.7 0.6 0.0 -0.4
Asset-Liability Profile (%) Loans/Deposit Ratio 86.9 88.6 86.3 85.6 86.4 88.1 92.3 93.1 CASA Ratio 30.7 32.5 33.3 38.1 44.0 50.8 51.3 52.3 Cost/Assets 2.5 2.7 2.8 2.8 2.6 2.4 2.3 2.3 Cost/Total Income 52.5 52.1 53.6 57.5 48.4 47.3 45.9 44.5 Cost/Core Income 54.0 53.8 55.6 58.8 50.3 48.1 46.5 45.0 Int. Expense/Int.Income 63.2 60.8 60.3 57.9 54.1 51.7 53.7 52.6 Fee Income/Total Income 25.7 26.2 28.4 25.2 26.2 28.3 29.1 28.5 Non Int. Inc./Total Income 28.5 29.3 32.0 27.5 30.0 29.8 30.4 29.6 Empl. Cost/Total Expenses 52.4 51.4 48.9 51.2 49.3 45.9 43.8 41.9 Investment/Deposit Ratio 51.1 42.1 41.4 37.0 28.6 33.5 32.9 31.9
Profitability Ratios & Valuation RoE 14.8 12.7 11.9 11.0 13.2 12.5 11.8 13.2 RoA 1.6 1.5 1.5 1.4 1.7 1.7 1.6 1.7 Consolidated ROE 15.0 13.4 13.0 12.5 13.8 13.9 13.2 14.1 Consolidated ROA 1.8 1.8 1.8 1.8 1.9 2.0 2.0 2.1 RoRWA 1.9 1.9 2.0 1.1 1.5 1.5 1.5 1.6 Standalone BV (INR) 79.0 108.0 121.0 130.6 150.0 196.7 220.4 250.5 Growth (%) -4.8 36.7 12.0 8.0 14.8 31.1 12.1 13.6 Price-BV (x) 5.4 4.1 3.7 3.3 Consolidated BV (INR) 110.2 144.7 164.2 181.9 209.1 264.9 302.0 347.0 Growth (%) -4.5 31.3 13.5 10.8 15.0 26.7 14.0 14.9 Price-Consol BV (x) 5.6 4.4 3.9 3.4 Standalone Adjusted BV (INR) 79.3 75.7 102.9 121.6 138.8 177.6 200.0 227.6 Growth (%) 26.6 -4.5 35.9 18.2 14.2 28.0 12.6 13.8 Price-ABV (x) 5.9 4.6 4.1 3.6 Consolidated Adjusted BV (INR) 106.9 139.5 160.1 172.5 197.7 253.5 291.2 335.4 Growth (%) -4.4 30.6 14.7 7.8 14.6 28.3 14.8 15.2 Price-Consol ABV (x) 6.0 4.6 4.0 3.5 Standalone EPS (INR) 11.9 11.8 13.6 12.4 18.6 21.8 24.7 31.1 Growth (%) 14.5 -0.8 14.7 -9.0 50.1 17.4 13.2 26.0 Price-Earnings (x) 43.9 37.3 33.0 26.2 Consolidated EPS (INR) 17.0 17.1 20.1 18.9 26.8 32.5 37.3 45.8 Change (%) 9.5 1.0 17.1 -6.0 42.3 21.3 14.6 22.9 Price-Consolidated Earnings (x) 43.9 36.2 31.6 25.7 Dividend Per Share (INR) 0.2 0.2 0.4 0.6 0.0 0.7 1.0 1.1 Dividend Yield (%) 0.0 0.0 0.0 0.1 0.0 0.1 0.1 0.1 E: MOSL Estimates
Kotak Mahindra Bank
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Corporate profile Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%) Sep-18 Jun-18 Sep-17
Promoter 30.0 30.0 30.1
DII 8.8 8.8 8.5
FII 39.4 39.9 39.9
Others 21.8 21.3 21.6
Note: FII Includes depository receipts Source: Capitaline
Exhibit 3: Top holders Holder Name % Holding
Canada Pension Plan Investment Board 6.0
Europacific Growth Fund 4.9
Ing Mauritius Investments I 3.7
Oppenheimer Developing Markets Fund 3.0
Source: Capitaline
Exhibit 4: Top management Name Designation
Shankar Acharya Chairman
Dipak Gupta Joint Managing Director
Uday Kotak CEO & MD
Bina Chandarana Company Secretary
Source: Capitaline
Exhibit 5: Directors Name Name
Amit Desai N P Sarda
Prakash Apte C Jayaram
Farida Khambata Mark Edwin Newman
S Mahendra Dev Uday Chander Khanna
*Independent
Exhibit 6: Auditors Name Type
S R Batliboi & Co LLP Statutory
Source: Capitaline
Exhibit 7: MOSL forecast v/s consensus EPS (INR)
MOSL forecast
Consensus forecast
Variation (%)
FY19 37.3 39.8 -6.4
FY20 45.8 50.6 -9.5
Source: Bloomberg
Company description Kotak Mahindra Bank (KMB) is part of the larger Kotak Mahindra Group led by Mr. Uday Kotak, Founder and Managing Director of the Bank. The group has a strong presence across financial services value chain. Notably, KMB is the only bank in India’s corporate history to be converted into a bank from a non-banking finance company. The bank has pan-India presence with 1,425 branches and 2,236 ATMs as on Sept, 2018. In 2015, KMB merged with EIVBL in an all-stock deal.
Kotak Mahindra Bank
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N O T E S
Kotak Mahindra Bank
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Explanation of Investment Rating Investment Rating Expected return (over 12-month) BUY >=15% SELL < - 10%NEUTRAL < - 10 % to 15%UNDER REVIEW Rating may undergo a change NOT RATED We have forward looking estimates for the stock but we refrain from assigning recommendation
*In case the recommendation given by the Research Analyst becomes inconsistent with the investment rating legend, the Research Analyst shall within 28 days of theinconsistency, take appropriate measures to make the recommendation consistent with the investment rating legend. Disclosures The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations). Motilal Oswal Securities Ltd. (MOSL)* is a SEBI Registered Research Analyst having registration no. INH000000412. MOSL, the Research Entity (RE) as defined in theRegulations, is engaged in the business of providing Stock broking services, Investment Advisory Services, Depository participant services & distribution of various financialproducts. MOSL is a subsidiary company of Motilal Oswal Financial Service Ltd. (MOFSL). MOFSL is a listed public company, the details in respect of which are available onwww.motilaloswal.com. MOSL is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock Exchange of India Ltd.(NSE) and Bombay Stock Exchange Limited (BSE), Multi Commodity Exchange of India (MCX) & National Commodity & Derivatives Exchange Ltd. (NCDEX) for its stock brokingactivities & is Depository participant with Central Depository Services Limited (CDSL) & National Securities Depository Limited (NSDL) and is member of Association of MutualFunds of India (AMFI) for distribution of financial products. Details of associate entities of Motilal Oswal Securities Limited are available on the website athttp://onlinereports.motilaloswal.com/Dormant/documents/List%20of%20Associate%20companies.pdf MOSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or othercompensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOSL eventhough there might exist an inherent conflict of interest in some of the stocks mentioned in the research report MOSL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of this report should be aware that MOSL may have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. Details of pending Enquiry Proceedings of Motilal Oswal Securities Limited are available on the website athttps://galaxy.motilaloswal.com/ResearchAnalyst/PublishViewLitigation.aspx A graph of daily closing prices of securities is available at www.nseindia.com, www.bseindia.com. Research Analyst views on Subject Company may vary based on Fundamentalresearch and Technical Research. Proprietary trading desk of MOSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated from MOSL research activity and therefore it can have an independent view with regards to Subject Company for which Research Team have expressed their views. Regional Disclosures (outside India) This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSL & its group companies to registration or licensing requirements within such jurisdictions. For Hong Kong: This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the HongKong Securities and Futures Commission (SFC) pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research AnalystRegulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution ofresearch report in Hong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of thesesecurities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are notlocated in Hong Kong & are not conducting Research Analysis in Hong Kong. For U.S. Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and togetherwith the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL , including the products and services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to"Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is onlyavailable to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of theU.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conductbusiness with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement. The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, publicappearances and trading securities held by a research analyst account. For Singapore In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets services license and an exempt financial adviser in Singapore.As per the approved agreement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP 289) and Paragraph 11 of First Schedule of Financial Advisors Act (CAP 110) provided to MOCMSPL by Monetary Authority of Singapore. Persons in Singapore should contact MOCMSPL in respect of any matter arising from, or in connection with this report/publication/communication. This report is distributed solely to persons who qualify as “Institutional Investors”, of which some of whom may consist of "accredited" institutional investors as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (“theSFA”). Accordingly, if a Singapore person is not or ceases to be such an institutional investor, such Singapore Person must immediately discontinue any use of this Report andinform MOCMSPL. Specific Disclosures 1 MOSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company. 2 MOSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company 3 MOSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months 4 MOSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report 5 Research Analyst has not served as director/officer/employee in the subject company 6 MOSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months 7 MOSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months 8 MOSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months 9 MOSL has not received any compensation or other benefits from third party in connection with the research report 10 MOSL has not engaged in market making activity for the subject company
Kotak Mahindra Bank
24 October 2018 12
**************************************************************** **************************************************************** The associates of MOSL may have: - financial interest in the subject company - actual/beneficial ownership of 1% or more securities in the subject company - received compensation/other benefits from the subject company in the past 12 months - other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on
the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOSL even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.
- acted as a manager or co-manager of public offering of securities of the subject company in past 12 months - 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) discussed herein or act as an advisor or lender/borrower to such company(ies) - received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services. The associates of MOSL has not received any compensation or other benefits from third party in connection with the research report Above disclosures include beneficial holdings lying in demat account of MOSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not consider demat accounts which are opened in name of MOSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOSL also earns DP income from clients which are not considered in above disclosures. Analyst Certification The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. Terms & Conditions: This report has been prepared by MOSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MOSL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOSL will not treat recipients as customers by virtue of their receiving this report. Disclaimer: The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. 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The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. 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The existing registration no(s) of MOSL would be used until receipt of new MOFSL registration numbers.
