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Kotak Mahindra Bank
Good Quality But Valuations
Rich
Having met with management today at our India Investor Conference 2012
in Mumbai, these are some of our takeaways...
Kotak bank continues focusing more on transaction banking and working capital
loans as opposed to project loans or big concentrated bets. It expects loan
growth to be around 25% in FY13
The bank is optimistic on its CASA acquisition strategies. It intends to increase
CASA base but refrained from assigning any number as it has been only 2
months.
Fee income on a normalized basis can be expected to follow balance sheet
growth.
Bank plans to increase branch network from 330 (Dec ‘11) to 500 branches by
Calendar 2013.
Asset quality continues to hold up. Bank does not expect major slippages and
restructuring coming forward.
Price objective basis & risk
Kotak Mahindra Bank (XXRVF)
In our PO of Rs435, we value KMB on a SOTP basis, benchmarking each
business to the best in its class and assigning top tier multiples to reflect its better
risk profile. We assign a P/B of 2.5x to standalone bank for a 15% ROE. This is a
20-25% premium to peer banks that have higher ROEs. The risk return is similar
to its closest peer. Other business adds Rs156/share incl. Rs78/shr. for Kotak
Prime. Risks are a sharp credit cycle, which could result in higher than estimated
NPLs and slowdown in growth. Slow capital markets could also hurt earnings
growth. Risks specific to KMB are 1) tough competition in each business segment
2) the Bank's low CASA and high LDRs could limit loan growth. 3) While the
management is experienced and well respected, there is too much dependence
on a single individual- Mr. Uday Kotak 4)Excess capital may be deployed to make
expensive acquisitions, which could be EPS dilutive. and 5) Approximately 25%
of earnings are still being driven by market linked businesses, which could see a
further downside if market volatility / slide continues.
Upside risks to earnings are sustaining loan growth above average and asset
quality comfort.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Kotak Mahindra Bank
Good Quality But Valuations
Rich
Having met with management today at our India Investor Conference 2012
in Mumbai, these are some of our takeaways...
Kotak bank continues focusing more on transaction banking and working capital
loans as opposed to project loans or big concentrated bets. It expects loan
growth to be around 25% in FY13
The bank is optimistic on its CASA acquisition strategies. It intends to increase
CASA base but refrained from assigning any number as it has been only 2
months.
Fee income on a normalized basis can be expected to follow balance sheet
growth.
Bank plans to increase branch network from 330 (Dec ‘11) to 500 branches by
Calendar 2013.
Asset quality continues to hold up. Bank does not expect major slippages and
restructuring coming forward.
Price objective basis & risk
Kotak Mahindra Bank (XXRVF)
In our PO of Rs435, we value KMB on a SOTP basis, benchmarking each
business to the best in its class and assigning top tier multiples to reflect its better
risk profile. We assign a P/B of 2.5x to standalone bank for a 15% ROE. This is a
20-25% premium to peer banks that have higher ROEs. The risk return is similar
to its closest peer. Other business adds Rs156/share incl. Rs78/shr. for Kotak
Prime. Risks are a sharp credit cycle, which could result in higher than estimated
NPLs and slowdown in growth. Slow capital markets could also hurt earnings
growth. Risks specific to KMB are 1) tough competition in each business segment
2) the Bank's low CASA and high LDRs could limit loan growth. 3) While the
management is experienced and well respected, there is too much dependence
on a single individual- Mr. Uday Kotak 4)Excess capital may be deployed to make
expensive acquisitions, which could be EPS dilutive. and 5) Approximately 25%
of earnings are still being driven by market linked businesses, which could see a
further downside if market volatility / slide continues.
Upside risks to earnings are sustaining loan growth above average and asset
quality comfort.
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