Kotak Mahindra Bank (KTKM.BO)
Results: Caution Out, Bear In
A beat...but actually beating a retreat — It’s a strong P&L quarter and a bad BS
quarter. But the key takeaway/guidance is management’s almost bearish big picture
view; loan growth guidance cut to 15% (20-30%), credit costs up to 60bps (40-45bps),
GDP outlook – 5% almost a best case and cautious on RBI’s recent moves (high risk of
rising rates, growth likely to suffer). Now, the macro bear amongst the private banks.
BS: Some pain, sloth and not ready to risk — The miss – a relatively large corporate
asset brings asset quality strain, growth is held back (more CV/CE) though still at 20%,
but most importantly, management guides down decisively on growth (15%) and the
broader economic outlook. There should not be more material/lumpy asset quality
pressures (nothing brewing for now), its retail over corporate assets but as an overlay,
it’s now risk over growth / return.
P&L: Looks pretty good — Kotak has recorded a strong 42% yoy profit growth, and
it’s a good mix: margins are up a bit, fee income is strong (+29%), operating costs
under check and there’s a substantial trading boost. There’s offset in sharply higher
credit costs; but the qtr’s P&L is good – helped by some flirting with fixed income
trading, and gains of easy liquidity. This trading / liquidity party though may be over.
Market Turmoil – pain, but seems largely ok — Kotak is – theoretically at least –
more vulnerable to the current market turmoil; wholesale funding, recent fixed income
trading bias and relatively market sensitive. While there probably will be some bond
trading pain (long positions halved before RBI move – but still there); mgmt suggests
they are liquidity surplus, so no big squeeze here. This should only boost its reputation
as a good risk manager – but the P&L will not be as good as this qtr.
You’re playing safety, P&L and a diversified biz…not growth or optimism — The
last time there was a problem in the system (GFC), Kotak effectively shut shop. This
time, it’s keeping the shutters up – will stay in the game, focus on the P&L, stay away
from all things risky and lag peers in growth. This should keep it and investors safe –
probably the safest in the pvt. banks system. So Kotak looks good if things get bad, but
it won’t look so nice if things get better. Maintain Neutral.
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Results: Caution Out, Bear In
A beat...but actually beating a retreat — It’s a strong P&L quarter and a bad BS
quarter. But the key takeaway/guidance is management’s almost bearish big picture
view; loan growth guidance cut to 15% (20-30%), credit costs up to 60bps (40-45bps),
GDP outlook – 5% almost a best case and cautious on RBI’s recent moves (high risk of
rising rates, growth likely to suffer). Now, the macro bear amongst the private banks.
BS: Some pain, sloth and not ready to risk — The miss – a relatively large corporate
asset brings asset quality strain, growth is held back (more CV/CE) though still at 20%,
but most importantly, management guides down decisively on growth (15%) and the
broader economic outlook. There should not be more material/lumpy asset quality
pressures (nothing brewing for now), its retail over corporate assets but as an overlay,
it’s now risk over growth / return.
P&L: Looks pretty good — Kotak has recorded a strong 42% yoy profit growth, and
it’s a good mix: margins are up a bit, fee income is strong (+29%), operating costs
under check and there’s a substantial trading boost. There’s offset in sharply higher
credit costs; but the qtr’s P&L is good – helped by some flirting with fixed income
trading, and gains of easy liquidity. This trading / liquidity party though may be over.
Market Turmoil – pain, but seems largely ok — Kotak is – theoretically at least –
more vulnerable to the current market turmoil; wholesale funding, recent fixed income
trading bias and relatively market sensitive. While there probably will be some bond
trading pain (long positions halved before RBI move – but still there); mgmt suggests
they are liquidity surplus, so no big squeeze here. This should only boost its reputation
as a good risk manager – but the P&L will not be as good as this qtr.
You’re playing safety, P&L and a diversified biz…not growth or optimism — The
last time there was a problem in the system (GFC), Kotak effectively shut shop. This
time, it’s keeping the shutters up – will stay in the game, focus on the P&L, stay away
from all things risky and lag peers in growth. This should keep it and investors safe –
probably the safest in the pvt. banks system. So Kotak looks good if things get bad, but
it won’t look so nice if things get better. Maintain Neutral.
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