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Key Takeaways
KMB FY12 loan growth to be higher than the industry's
Kotak Mahindra Bank (KMB) expects FY12 loan growth to be faster than that of the
industry at ~30% (1QFY12 consolidated loan book grew 36% YoY and 8% QoQ).
The focus will be on corporate and secured retail loans. Among retail loans, home,
car and CV loans are likely to be growth drivers.
Margins under pressure, but unlikely to fall below 5%
In 1QFY12 NIMs declined ~30bp QoQ to 5% due to rising cost of funds. However,
the management expects to sustain NIM at ~5% and margins are unlikely to fall
significantly below this level.
Asset quality expected to be stable
In 1QFY12 consolidated gross NPAs were largely flat QoQ.
The management expects asset quality to be healthy due to a higher share of
collateralized loans and improved risk management practises.
However, a steep increase in policy rates resulting in an economic slowdown could
pose a threat to asset quality.
Weak outlook on capital market-related businesses
The broking industry continues on the path of fragmentation and margin pressures
still remains. The management sees consolidation in this space but it is still early
days.
No major IB deals are taking place, but KMB has a quality IB franchise that can help
it to develop corporate banking business.
The outlook for capital market-related businesses remains weak and the management
does not expect the situation to improve in the near term.
Other highlights
The life insurance business turned profitable and does not require major capital
infusion. So far, INR 5.6b has been infused as capital in this business.
Excess capital is adversely affecting RoEs (bank standalone tier-I ratio 16%)
KMB is considering acquisition as an option, but will not acquire anything or lend
aggressively to consume capital and improve return ratios.
Valuation and view
The lending business is expected to be the largest (75%+; ~80% in 1QFY12)
contributor to profitability. We expect the bank to report ~27% loan CAGR over
FY11-13. We expect earnings CAGR (ex-insurance) of 16% over FY11-13. The stock
trades at 2.1x FY13E BV and 15.8x FY13E EPS (adjusted for value of the insurance
business). Valuations are rich, maintain Neutral.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
KMB FY12 loan growth to be higher than the industry's
Kotak Mahindra Bank (KMB) expects FY12 loan growth to be faster than that of the
industry at ~30% (1QFY12 consolidated loan book grew 36% YoY and 8% QoQ).
The focus will be on corporate and secured retail loans. Among retail loans, home,
car and CV loans are likely to be growth drivers.
Margins under pressure, but unlikely to fall below 5%
In 1QFY12 NIMs declined ~30bp QoQ to 5% due to rising cost of funds. However,
the management expects to sustain NIM at ~5% and margins are unlikely to fall
significantly below this level.
Asset quality expected to be stable
In 1QFY12 consolidated gross NPAs were largely flat QoQ.
The management expects asset quality to be healthy due to a higher share of
collateralized loans and improved risk management practises.
However, a steep increase in policy rates resulting in an economic slowdown could
pose a threat to asset quality.
Weak outlook on capital market-related businesses
The broking industry continues on the path of fragmentation and margin pressures
still remains. The management sees consolidation in this space but it is still early
days.
No major IB deals are taking place, but KMB has a quality IB franchise that can help
it to develop corporate banking business.
The outlook for capital market-related businesses remains weak and the management
does not expect the situation to improve in the near term.
Other highlights
The life insurance business turned profitable and does not require major capital
infusion. So far, INR 5.6b has been infused as capital in this business.
Excess capital is adversely affecting RoEs (bank standalone tier-I ratio 16%)
KMB is considering acquisition as an option, but will not acquire anything or lend
aggressively to consume capital and improve return ratios.
Valuation and view
The lending business is expected to be the largest (75%+; ~80% in 1QFY12)
contributor to profitability. We expect the bank to report ~27% loan CAGR over
FY11-13. We expect earnings CAGR (ex-insurance) of 16% over FY11-13. The stock
trades at 2.1x FY13E BV and 15.8x FY13E EPS (adjusted for value of the insurance
business). Valuations are rich, maintain Neutral.
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