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Kotak ------------------------------------------------------------------------------------ Maintain NEUTRAL - Lending business strong while capital market business below expectations
● Kotak’s 3Q11 net profit (Rs3.8 bn; 16% YoY) was in line with our
and the street’s estimates. Performance of the lending business
remained strong (47% YoY profit growth) while that of the capital
market businesses was below expectations.
● Loan growth was robust at 37% YoY, driven by retail as well as
corporate. While FY11E loan growth should be over 40%, given
the tight liquidity conditions and rising cost of funds, FY12E
growth is likely to moderate to about 30%. Margins were down 20
bp QoQ (to 5.4%) and management expects margins to reach
about 5% over the next few quarters.
● Kotak’s asset quality is among the best, with gross NPLs falling
further to 2% (72% coverage) and credit costs falling to 0.2%. The
bank indicated that slippages are still on the decline.
● The capital market business’ performance was below
expectations, driven by lower market activity, pricing and
competitive pressures (leading to lower market share) and outlook
doesn’t look attractive, either.
● With the core bank trading at 2.8x FY12E book, and thus despite
strong lending business momentum, we retain a NEUTRAL.
Lending business: robust growth, near zero credit costs
Performance of the lending business remained strong, driven by
healthy growth and falling provisions. Net profit for the bank and Kotak
Prime (car financing business) was up 47% YoY. Loan growth was
robust at 37% QoQ (7% QoQ), driven by the retail (mortgages, auto,
CVs) as well as corporate segments. Given the headwinds of tight
liquidity and rising wholesale rates, FY12E loan growth is likely to be
about 30% levels (from 40%+ levels in FY11E). Margins were down
20 bp QoQ to 5.4% (5.2% excluding the impact of capital from the
Sumitomo stake sale) with rising cost of funds and management
expects margins to moderate to 5% over the next few quarters (rising
share of corporate and mortgage loans were also impacting margins
over the past few quarters). Share of CASA remained stable at 28%.
Asset quality continues to improve, with gross NPLs falling further to
2.2% (down 160 bp YoY) and coverage comfortable at 72%. Credit
costs fell further to 0.2% during the quarter and slippages continued to
decline. Kotak remains very well capitalised, with tier I at 18%
(consolidated group).
Capital market business’ performance below expectations
The capital market businesses’ performance was below expectations,
with alternative investments (domestic and international), Inv ltd (float
money lending business) witnessing a sharp slowdown QoQ.
Investment banking profit remained weak and securities market share
was stable at 3.7% (3.7% for 9M FY11; 4.1% in FY10). While the
medium-term outlook does not seem to be improving (fragmentation,
lower pricing, etc.), Kotak is optimistic about the longer-term outlook of
these businesses. Investment banking and securities annualised profit
for 9M FY11 is still at 43% of FY08 profit. Its insurance business
outlook is still clouded post the new regulations.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Kotak ------------------------------------------------------------------------------------ Maintain NEUTRAL - Lending business strong while capital market business below expectations
● Kotak’s 3Q11 net profit (Rs3.8 bn; 16% YoY) was in line with our
and the street’s estimates. Performance of the lending business
remained strong (47% YoY profit growth) while that of the capital
market businesses was below expectations.
● Loan growth was robust at 37% YoY, driven by retail as well as
corporate. While FY11E loan growth should be over 40%, given
the tight liquidity conditions and rising cost of funds, FY12E
growth is likely to moderate to about 30%. Margins were down 20
bp QoQ (to 5.4%) and management expects margins to reach
about 5% over the next few quarters.
● Kotak’s asset quality is among the best, with gross NPLs falling
further to 2% (72% coverage) and credit costs falling to 0.2%. The
bank indicated that slippages are still on the decline.
● The capital market business’ performance was below
expectations, driven by lower market activity, pricing and
competitive pressures (leading to lower market share) and outlook
doesn’t look attractive, either.
● With the core bank trading at 2.8x FY12E book, and thus despite
strong lending business momentum, we retain a NEUTRAL.
Lending business: robust growth, near zero credit costs
Performance of the lending business remained strong, driven by
healthy growth and falling provisions. Net profit for the bank and Kotak
Prime (car financing business) was up 47% YoY. Loan growth was
robust at 37% QoQ (7% QoQ), driven by the retail (mortgages, auto,
CVs) as well as corporate segments. Given the headwinds of tight
liquidity and rising wholesale rates, FY12E loan growth is likely to be
about 30% levels (from 40%+ levels in FY11E). Margins were down
20 bp QoQ to 5.4% (5.2% excluding the impact of capital from the
Sumitomo stake sale) with rising cost of funds and management
expects margins to moderate to 5% over the next few quarters (rising
share of corporate and mortgage loans were also impacting margins
over the past few quarters). Share of CASA remained stable at 28%.
Asset quality continues to improve, with gross NPLs falling further to
2.2% (down 160 bp YoY) and coverage comfortable at 72%. Credit
costs fell further to 0.2% during the quarter and slippages continued to
decline. Kotak remains very well capitalised, with tier I at 18%
(consolidated group).
Capital market business’ performance below expectations
The capital market businesses’ performance was below expectations,
with alternative investments (domestic and international), Inv ltd (float
money lending business) witnessing a sharp slowdown QoQ.
Investment banking profit remained weak and securities market share
was stable at 3.7% (3.7% for 9M FY11; 4.1% in FY10). While the
medium-term outlook does not seem to be improving (fragmentation,
lower pricing, etc.), Kotak is optimistic about the longer-term outlook of
these businesses. Investment banking and securities annualised profit
for 9M FY11 is still at 43% of FY08 profit. Its insurance business
outlook is still clouded post the new regulations.
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