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Kotak ------------------------------------------------------------------------------------ Maintain NEUTRAL
Strong 4Q11 results
● Kotak's 4Q11 net profit (Rs4.9 bn; +17% YoY) was well above our
estimates mainly due to the strong lending business performance
(better than expected margins and asset quality).
● The share of lending business (bank and car fin) in total profits
increased to 73% in FY11 (vs 56% in FY10). Capital mkt business
contributed only 23% of profits in FY11 (vs peak of 61% in FY08).
● Loan growth was robust at 39% YoY driven by both retail and
corporate. Margins surprised positively (+20 bp QoQ) aided by the
incremental shift towards CV (from corporate) & re-pricing benefits
● Asset quality continued to be among the best with negative net
slippages in 4Q (gross NPLs were down 133 bp YoY to 1.7%).
● Over past two years, Kotak’s consol earnings grew at a 55%
CAGR and even as we expect FY12-13 loan growth of ~30%, we
expect earnings growth to be a modest 10-20% (with moderating
NIMs, higher credit costs, soft capital mkt biz). Our FY12-13 EPS
reduces marginally by 2% and TP changes to Rs444. With 15%
FY12-13 RoEs and at 18x FY12EPS, we retain NEUTRAL.
Lending business robust – better NIMs, net slippages negative
Lending business continued to be robust, driven by healthy growth,
better-than-expected margins and robust asset quality. Loan growth for
the year was robust at 39% YoY (3% QoQ in 4Q), driven by both retail
(mortgage, auto, CV) and corporate. Our forecast FY12 loan growth is
at 29%. Margins surprised positively (+ 20 bp QoQ to 5.6%) aided by
the loan mix shift during the quarter (corporate loans were down 6%
QoQ while CVs were up 13% QoQ) and the re-pricing of loans (Kotak
did most of the re-pricing only during 4Q). With rising cost of funds, we
expect margins to moderate by 20-25 bp in FY12. The bank added 72
branches during FY11 (29% increase in network – currently 321) and
the share of CASA was stable at 30% (vs 31% in 4Q10).
Asset quality continues to improve with gross NPLs declining further
to 1.7% (down 133 bp YoY) and coverage (excl. write-offs)
comfortable at 66%. Net slippages were negative during the quarter
(with strong recoveries) leading to a write-back of Rs72 mn for loan
loss provisions. Kotak continues to be very well capitalised with a Tier
I of 18% (consolidated group).
Figure 1: Kotak Mahindra Bank standalone 4Q11 results summary
Rs mn 4Q10 3Q11 4Q11 % YoY % QoQ
Net int inc 5,260 5,715 6,216 18 9
Total income 7,775 7,368 8,129 5 10
Operating expenses (3,419) (4,221) (4,449) 30 5
Pre provision profit 4,356 3,147 3,680 -16 17
Loan loss provisions (1,276) (427) 72 -106 -117
Net Profit 2,025 1,879 2,487 23 32
Source: Company data
Capital markets businesses soft
The capital market businesses performance was better than estimates
(+24% QoQ) with investment banking, international subsidiaries
witnessing a sharp sequential growth in profits. However, the
securities market share has sharply dropped to 2.5% during 4QFY11
(vs 3.7% for 9MFY11; 4.1% in FY10). Medium term outlook for these
businesses does not look attractive given rising competition and
declining margins. While the total premium was almost flat YoY, life
insurance business registered healthy profit of Rs1.1 mn in FY11
(+46% YoY). Despite the new regulations, management expects
insurance business profitability to increase over the next 1-2 years.
Figure 2: Kotak Mahindra consolidated 4Q11 results summary
Rs mn 4Q10 3Q11 4Q11 % YoY % QoQ
Lending business 2,611 2,816 3,356 29 19
Standalone bank 2,025 1,879 2,487 23 32
Kotak prime 586 937 869 48 -7
Kotak securities 508 466 362 -29 -22
Kotak capital 133 76 300 125 294
Inv ltd 68 28 57 -17 106
AMC 148 72 36 -76 -51
Insurance 444 236 712 60 202
Alternate inv 70 54 59 -16 9
International 154 82 150 -2 83
PAT (after min int / adj) 4,186 3,836 4,914 17 28
Source: Company data
We value Kotak at Rs444 based on the sum-of-the-parts analysis. The
standalone bank and Kotak Prime (car financing business) are valued
at 2.5x FY13 book value (Rs327 per share). Other subsidiaries are
valued at Rs117/ sh (Securities/ Inv banking at Rs44 – 12x FY13
EPS; AMC at Rs30 – 4.0% of FY13 AUM; Life insurance at Rs25 –
15x FY12 new business achieved profit).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Kotak ------------------------------------------------------------------------------------ Maintain NEUTRAL
Strong 4Q11 results
● Kotak's 4Q11 net profit (Rs4.9 bn; +17% YoY) was well above our
estimates mainly due to the strong lending business performance
(better than expected margins and asset quality).
● The share of lending business (bank and car fin) in total profits
increased to 73% in FY11 (vs 56% in FY10). Capital mkt business
contributed only 23% of profits in FY11 (vs peak of 61% in FY08).
● Loan growth was robust at 39% YoY driven by both retail and
corporate. Margins surprised positively (+20 bp QoQ) aided by the
incremental shift towards CV (from corporate) & re-pricing benefits
● Asset quality continued to be among the best with negative net
slippages in 4Q (gross NPLs were down 133 bp YoY to 1.7%).
● Over past two years, Kotak’s consol earnings grew at a 55%
CAGR and even as we expect FY12-13 loan growth of ~30%, we
expect earnings growth to be a modest 10-20% (with moderating
NIMs, higher credit costs, soft capital mkt biz). Our FY12-13 EPS
reduces marginally by 2% and TP changes to Rs444. With 15%
FY12-13 RoEs and at 18x FY12EPS, we retain NEUTRAL.
Lending business robust – better NIMs, net slippages negative
Lending business continued to be robust, driven by healthy growth,
better-than-expected margins and robust asset quality. Loan growth for
the year was robust at 39% YoY (3% QoQ in 4Q), driven by both retail
(mortgage, auto, CV) and corporate. Our forecast FY12 loan growth is
at 29%. Margins surprised positively (+ 20 bp QoQ to 5.6%) aided by
the loan mix shift during the quarter (corporate loans were down 6%
QoQ while CVs were up 13% QoQ) and the re-pricing of loans (Kotak
did most of the re-pricing only during 4Q). With rising cost of funds, we
expect margins to moderate by 20-25 bp in FY12. The bank added 72
branches during FY11 (29% increase in network – currently 321) and
the share of CASA was stable at 30% (vs 31% in 4Q10).
Asset quality continues to improve with gross NPLs declining further
to 1.7% (down 133 bp YoY) and coverage (excl. write-offs)
comfortable at 66%. Net slippages were negative during the quarter
(with strong recoveries) leading to a write-back of Rs72 mn for loan
loss provisions. Kotak continues to be very well capitalised with a Tier
I of 18% (consolidated group).
Figure 1: Kotak Mahindra Bank standalone 4Q11 results summary
Rs mn 4Q10 3Q11 4Q11 % YoY % QoQ
Net int inc 5,260 5,715 6,216 18 9
Total income 7,775 7,368 8,129 5 10
Operating expenses (3,419) (4,221) (4,449) 30 5
Pre provision profit 4,356 3,147 3,680 -16 17
Loan loss provisions (1,276) (427) 72 -106 -117
Net Profit 2,025 1,879 2,487 23 32
Source: Company data
Capital markets businesses soft
The capital market businesses performance was better than estimates
(+24% QoQ) with investment banking, international subsidiaries
witnessing a sharp sequential growth in profits. However, the
securities market share has sharply dropped to 2.5% during 4QFY11
(vs 3.7% for 9MFY11; 4.1% in FY10). Medium term outlook for these
businesses does not look attractive given rising competition and
declining margins. While the total premium was almost flat YoY, life
insurance business registered healthy profit of Rs1.1 mn in FY11
(+46% YoY). Despite the new regulations, management expects
insurance business profitability to increase over the next 1-2 years.
Figure 2: Kotak Mahindra consolidated 4Q11 results summary
Rs mn 4Q10 3Q11 4Q11 % YoY % QoQ
Lending business 2,611 2,816 3,356 29 19
Standalone bank 2,025 1,879 2,487 23 32
Kotak prime 586 937 869 48 -7
Kotak securities 508 466 362 -29 -22
Kotak capital 133 76 300 125 294
Inv ltd 68 28 57 -17 106
AMC 148 72 36 -76 -51
Insurance 444 236 712 60 202
Alternate inv 70 54 59 -16 9
International 154 82 150 -2 83
PAT (after min int / adj) 4,186 3,836 4,914 17 28
Source: Company data
We value Kotak at Rs444 based on the sum-of-the-parts analysis. The
standalone bank and Kotak Prime (car financing business) are valued
at 2.5x FY13 book value (Rs327 per share). Other subsidiaries are
valued at Rs117/ sh (Securities/ Inv banking at Rs44 – 12x FY13
EPS; AMC at Rs30 – 4.0% of FY13 AUM; Life insurance at Rs25 –
15x FY12 new business achieved profit).
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