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F2Q11: A Mixed Bag
Kotak reported consolidated profit of Rs3.64 bn
(+11% QoQ and +21% YoY). Our estimate was
Rs3.77 bn. The key trends during the quarter:
a) Standalone bank – Profits grew by 4% QoQ and
55% YoY. Loan growth was robust at 14% QoQ and
35% YoY. Margins were stable QoQ but down 35
bps YoY. Asset quality trends continued to improve,
with GNPLs declining 5% QoQ and coverage ratio
improving to 70%.
b) NBFC (Kotak Prime) – Volume progression
remained robust at 10% QoQ /46% YoY. However,
profits were down 19% QoQ (but up 55% YoY),
driven by higher provisions and lower fee income.
c) Securities business – Profit growth was +9% QoQ
but down 32% YoY, tracking the trend in cash
market volumes. Market share was stable at 3.7%.
d) Investment banking – Profits registered a small
sequential pickup but still remain well below peak
levels seen in the last cycle.
e) Asset management divisions – Performance was
weak. The domestic mutual fund business recorded
a loss of Rs40 mn (vs. Rs74 mn in QE Jun-10 and
Rs178 mn in QE Sep-09). AUMs were stable – the
loss was driven by one-off MTM losses taken on
money-market mutual funds.
f) Insurance business – Profit of Rs134 mn.
However, the outlook remains uncertain with the
new regulations coming in place after the quarter
ended.
g) Capital position – Very comfortable at the group
level, with a CAR of ~20% (the bulk in the form of
Tier I equity).
Full details on the following pages. We have raised
our EPS estimates for FY11-FY13 by 4-5% apiece.
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