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EARNINGS REVIEW
Kotak Mahindra Bank (KTKM.BO)
Sell Equity Research
Above expectations on lower opex and write back of provisions
What surprised us
Kotak Mahindra Bank (KMB) reported a net profit of Rs2.6bn (34% yoy) ,
higher than GSe by 4% ( but 20% lower than Bloomberg consensus),
mainly on account of lower opex and write back of loan loss provisioning.
Key highlights: 1) NII grew 19% yoy and came in marginally below (1%)
GSe as NIMs contraction of 30bps qoq to 4.7% was offset by higher-than-
estimated volume growth of 41% yoy ( 4% higher than GSe). The sharp
contraction in margins was due to high growth in non-retail book (at 50%
yoy) which outpaced the retail growth (35% yoy) and decline in CASA ratio
by 100bps qoq to 26%. 2) Non-interest income, grew 25% yoy, and came
in 7% below GSe. 3) While headline opex growth was lower vs. our
estimates, operating efficiency deteriorated as cost/income ratio expanded
by 200bps qoq to 53.5%. 4) Write back in provisioning of Rs24mn was
mainly due to reversal in specific loan loss provisioning as asset quality
improved. KMB, however, had a m-t-m loss on AFS portfolio and also
made provisioning for standard assets. 5) Asset quality improved as
gross NPLs (ex. stressed asset buyout) declined to 1% of advances
(1QFY12:1.2%) however PCR declined 57.4%(-95bps qoq), which is
disappointing given that incrementally the environment is deteriorating
What to do with the stock
We raise our FY12-14E estimates by 0- 5% to factor in lower NPL
provisions. Consequently, we raise our SOTP based 12-m TP to Rs 470
(from Rs 460) as we also roll forward our BVPS to Sep-2012; we lower the
value of other businesses by Rs10 to Rs170. We retain a Sell rating on the
stock due to its premium valuation as the stock trades at a standalone P/B
3.1x FY12E vs. average ROE of 13% over FY12-14E. Key risks: Faster
branch expansion leading to higher CASA; turnaround in brokerage.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Kotak Mahindra Bank (KTKM.BO)
Sell Equity Research
Above expectations on lower opex and write back of provisions
What surprised us
Kotak Mahindra Bank (KMB) reported a net profit of Rs2.6bn (34% yoy) ,
higher than GSe by 4% ( but 20% lower than Bloomberg consensus),
mainly on account of lower opex and write back of loan loss provisioning.
Key highlights: 1) NII grew 19% yoy and came in marginally below (1%)
GSe as NIMs contraction of 30bps qoq to 4.7% was offset by higher-than-
estimated volume growth of 41% yoy ( 4% higher than GSe). The sharp
contraction in margins was due to high growth in non-retail book (at 50%
yoy) which outpaced the retail growth (35% yoy) and decline in CASA ratio
by 100bps qoq to 26%. 2) Non-interest income, grew 25% yoy, and came
in 7% below GSe. 3) While headline opex growth was lower vs. our
estimates, operating efficiency deteriorated as cost/income ratio expanded
by 200bps qoq to 53.5%. 4) Write back in provisioning of Rs24mn was
mainly due to reversal in specific loan loss provisioning as asset quality
improved. KMB, however, had a m-t-m loss on AFS portfolio and also
made provisioning for standard assets. 5) Asset quality improved as
gross NPLs (ex. stressed asset buyout) declined to 1% of advances
(1QFY12:1.2%) however PCR declined 57.4%(-95bps qoq), which is
disappointing given that incrementally the environment is deteriorating
What to do with the stock
We raise our FY12-14E estimates by 0- 5% to factor in lower NPL
provisions. Consequently, we raise our SOTP based 12-m TP to Rs 470
(from Rs 460) as we also roll forward our BVPS to Sep-2012; we lower the
value of other businesses by Rs10 to Rs170. We retain a Sell rating on the
stock due to its premium valuation as the stock trades at a standalone P/B
3.1x FY12E vs. average ROE of 13% over FY12-14E. Key risks: Faster
branch expansion leading to higher CASA; turnaround in brokerage.
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