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Kotak Mahindra Bank
Lending business profitability continues to improve: The lending business
profitability continues to improve with credit costs at ~60bps over the last 3 qtrs.
Retail asset quality continues to remain robust and we expect credit charges to
remain low in the medium term. Loan growth has been very strong at ~35% y/y
growth but would moderate to ~30% FY12E given the Macro headwinds including
rising rates.
Concerns on margins and capital market business factored in: Capital market
business profitability continues to disappoint with ~30% contraction in profits in
9M11. Also margins are moderating as expected due to loan book mix, high funding
costs and increasing leverage. We expect >25% growth in profits post factoring in
lower margins and lower growth for capital market business and we believe current
valuations at 14x FY13 earnings more than factor in the concerns on margins and
capital market businesses.
Maintain Overweight: We revise down earnings by 13-14% as we factor in lower
margins and fee income including capital market business profits. We thus revise
down our Mar-12 PT to Rs500/share (Sep-11 PT of Rs570/share earlier) based on 2
stage Gordon growth model implying 2.4x FY13 book including Rs26/share for the
insurance business. We believe current valuations factor in concerns on margins and
low flow business income. Key downside risks include a spike in interest rates
impacting retail loan growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Kotak Mahindra Bank
Lending business profitability continues to improve: The lending business
profitability continues to improve with credit costs at ~60bps over the last 3 qtrs.
Retail asset quality continues to remain robust and we expect credit charges to
remain low in the medium term. Loan growth has been very strong at ~35% y/y
growth but would moderate to ~30% FY12E given the Macro headwinds including
rising rates.
Concerns on margins and capital market business factored in: Capital market
business profitability continues to disappoint with ~30% contraction in profits in
9M11. Also margins are moderating as expected due to loan book mix, high funding
costs and increasing leverage. We expect >25% growth in profits post factoring in
lower margins and lower growth for capital market business and we believe current
valuations at 14x FY13 earnings more than factor in the concerns on margins and
capital market businesses.
Maintain Overweight: We revise down earnings by 13-14% as we factor in lower
margins and fee income including capital market business profits. We thus revise
down our Mar-12 PT to Rs500/share (Sep-11 PT of Rs570/share earlier) based on 2
stage Gordon growth model implying 2.4x FY13 book including Rs26/share for the
insurance business. We believe current valuations factor in concerns on margins and
low flow business income. Key downside risks include a spike in interest rates
impacting retail loan growth.
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