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Healthy core operating performance, higher opex affects bottom‐line: Kotak
Mahindra Bank (KMB) reported consolidated PAT of Rs3.84bn, up 15.7% YoY
and 5.3% QoQ and standalone PAT of Rs1.88bn, up 31.9% YoY, but down 3. 5%
QoQ. While the consolidated PAT met our expectations, standalone PAT was
lower‐than‐expected. For standalone banking operations, the operating
expenses grew by 18.4% QoQ, with employee and other operating expenses
growing nearly at the same pace. This was mainly on account of certain midyear
salary hikes given for employee retention and higher advertising expenses
towards the 25 years celebration campaign of the bank. Business growth stood
healthy, with consolidated advances growing by 36.7% YoY and 6.9% QoQ, led
by a sharp sequential increase in agri advances (up 12.8% QoQ), CV and
construction equipment loans (up 11.5% QoQ) and mortgages (up 11.5% QoQ).
Consolidated deposits grew strongly by 30.4% YoY, but declined by 0.8% QoQ.
Importantly, CASA deposits declined by 12.7% QoQ, resulting into an over
400bps QoQ decline in CASA ratio to 27.8%. NIM declined by 20bps QoQ TO
5.4%. However, the margins have been normalized due to the impact of the
strong recovery from a NPA account in Kotak Mahindra Prime, adjusting for the
interest on recovery; the margins could have improved to ~5.6%. Large part of
provisioning expenses pertains to the MTM provisions on G‐Secs. Asset quality
improved as GNPAs declined by 0.9% QoQ. Provision coverage improved further
to 68.4% from 66.3% in Q2FY11, and with technical write‐offs, it stood at 72%.
Healthy performance by Kotak Prime and life insurance subsidiaries: Kotak
Mahindra Prime reported a robust growth in bottom‐line, driven by a strong
recovery from an NPA account, while overall disbursements continued to grow
well. Capital market and asset management businesses continue to witness
headwinds. On account of revised ULIP guidelines coming into effect, the overall
premium growth got impacted, but tighter cost controls improved profitability.
Valuation and Outlook: Kotak Bank continues to perform well in its lending
operations. Outlook for most of its subsidiaries remains largely positive, while
the insurance business is likely to take another couple of quarters to
consolidate. The post results conference call highlighted management’s focus
on building capacity for the next phase of growth. The bank, thereby,
announced a mid‐year salary hike to retain talent across group, the benefits of
which are likely to accrue in the coming years. This, coupled with higher
advertising expenses towards the completion of 25 years, too, affected the
overall cost and income dynamics for the bank. We have, therefore, revised our
earnings estimates downwards for standalone banking business by 7.2% and
5.6% for FY11 and FY12, respectively. Meanwhile, we have revised our
consolidated (ex‐insurance) earnings by 10.0% and 7.2% for FY11 and FY12,
respectively, to factor in the same. We maintain our ‘BUY’ rating, with a revised
price target of Rs531.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Healthy core operating performance, higher opex affects bottom‐line: Kotak
Mahindra Bank (KMB) reported consolidated PAT of Rs3.84bn, up 15.7% YoY
and 5.3% QoQ and standalone PAT of Rs1.88bn, up 31.9% YoY, but down 3. 5%
QoQ. While the consolidated PAT met our expectations, standalone PAT was
lower‐than‐expected. For standalone banking operations, the operating
expenses grew by 18.4% QoQ, with employee and other operating expenses
growing nearly at the same pace. This was mainly on account of certain midyear
salary hikes given for employee retention and higher advertising expenses
towards the 25 years celebration campaign of the bank. Business growth stood
healthy, with consolidated advances growing by 36.7% YoY and 6.9% QoQ, led
by a sharp sequential increase in agri advances (up 12.8% QoQ), CV and
construction equipment loans (up 11.5% QoQ) and mortgages (up 11.5% QoQ).
Consolidated deposits grew strongly by 30.4% YoY, but declined by 0.8% QoQ.
Importantly, CASA deposits declined by 12.7% QoQ, resulting into an over
400bps QoQ decline in CASA ratio to 27.8%. NIM declined by 20bps QoQ TO
5.4%. However, the margins have been normalized due to the impact of the
strong recovery from a NPA account in Kotak Mahindra Prime, adjusting for the
interest on recovery; the margins could have improved to ~5.6%. Large part of
provisioning expenses pertains to the MTM provisions on G‐Secs. Asset quality
improved as GNPAs declined by 0.9% QoQ. Provision coverage improved further
to 68.4% from 66.3% in Q2FY11, and with technical write‐offs, it stood at 72%.
Healthy performance by Kotak Prime and life insurance subsidiaries: Kotak
Mahindra Prime reported a robust growth in bottom‐line, driven by a strong
recovery from an NPA account, while overall disbursements continued to grow
well. Capital market and asset management businesses continue to witness
headwinds. On account of revised ULIP guidelines coming into effect, the overall
premium growth got impacted, but tighter cost controls improved profitability.
Valuation and Outlook: Kotak Bank continues to perform well in its lending
operations. Outlook for most of its subsidiaries remains largely positive, while
the insurance business is likely to take another couple of quarters to
consolidate. The post results conference call highlighted management’s focus
on building capacity for the next phase of growth. The bank, thereby,
announced a mid‐year salary hike to retain talent across group, the benefits of
which are likely to accrue in the coming years. This, coupled with higher
advertising expenses towards the completion of 25 years, too, affected the
overall cost and income dynamics for the bank. We have, therefore, revised our
earnings estimates downwards for standalone banking business by 7.2% and
5.6% for FY11 and FY12, respectively. Meanwhile, we have revised our
consolidated (ex‐insurance) earnings by 10.0% and 7.2% for FY11 and FY12,
respectively, to factor in the same. We maintain our ‘BUY’ rating, with a revised
price target of Rs531.
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