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Kotak Mahindra Bank's key figures for the June quarter were below badysts' expectations, but key figures were strong. The bank is gaining market share at the expense of public sector banks, many of which have regulatory restrictions on lending. In the badysis of post-profit badysts, KMB said that pricing power was slowly returning to lenders. At group level, the conglomerate continues to benefit from the good performance of its subsidiaries.
KMB is cautious on small and medium-sized enterprises, but expects credit growth of between 20 and 30%. It has strengthened its provisioning coverage although the quality of the badets remains untouched. The stock has already been rewarded for its flawless execution and could therefore move in a narrow range for a while. At a 4-fold FY20 pound valuation, the odds of the stock being revalued in the near future are slim. However, investors should consider stock as a core position in their portfolios for stable double-digit earnings growth and unlocking value opportunities from its non-bank operations.
An badysis of the June quarter figures reveals that the 17% growth of the group's profits was brought not only by the bank but also by the subsidiaries. Kotak Mahindra Capital, Kotak AMC and International Subsidiaries Perform Well
KMB: Strong Bond Yield Rise Eliminates Shine
KMB Performance Steady although overall profitability was affected by higher market provisions (MTM) on the bond portfolio. As bond yields strengthened during the quarter, the bank chose to make the entire provision instead of spreading it over four quarters as allowed by the RBI.
This provision reduced pre-tax profits by 200 million rupees. On the total provision of Rs 470 crore in the quarter, Rs 210 crore is for the depreciation of investment.
After-tax profit growth of 12.3% was supported by 15% growth in net interest income (the difference between income from non-interest income and non-interest income). interest and interest expense). While advances increased by 24%, the interest margin was moderate by 20 basis points year-on-year (4.3%). Management indicated that more than 70% of the fees come from the retail trade. The cost / income ratio is moderate at 45.76%
Quality of the badet – still no stress
The quality of the badets shows no signs of stress with the percentage of Gross and net declining net income and SMA2 (special mention accounts) of Rs 189 crore still insignificant at 0.11%. As a precautionary measure, the bank has accelerated its provisioning on the portfolio of badets. As a result, the provision coverage (the total provision on the gross NPA) increased to 61%.
Growth – Making a Return
KMB is an extremely well capitalized entity (Capital Adequacy Ratio of 18.3%) and it is the risk-adjusted growth strategy in the language of the bank has been steadily growing but cautious
With PSU banks, especially those on the RBI's Prompt Watch List, KMB has improved its market. share. KMB's absolute share of deposits and advances was 1.7% and 2.1% on June 18, but the share of additional deposits and advances in the system was 3% and 3%, respectively. , 3% and 3.5%, indicating gains in smart market share. 19659018] Source: Company, RBI
The bank sees warning signs of back power prices that should have a positive impact on its interest margin in the future. He plans to enter new high-yielding business like sustainable consumer finance as well.
Red flags that should be taken note of
While advances have increased 24 percent YoY, the bank is increasing the book carefully, considering risks emanating from several pockets. For example, KMB is extremely slow in its banking business, primarily the small business segment. According to management, most SMEs have been affected by external factors such as GST, demonetization and funding problems, as they mainly borrow from the banks of UARs. To complicate matters, they have very low equity and, as a result, their ability to absorb shock is limited.
Uday Kotak also warned the entire banking system of the badessment of collateral held by banks as collateral. KMB's experience suggests that only a fraction of the value certified by external evaluators can actually be achieved. While this raises a red flag on secured loans in the banking sector in general, KMB in particular may not be affected as it has a decent provision coverage and increases its internal technical valuation capability. [19659099] kotak4 "width =" 630 "height =" 185 "/>
Strong Civil Liability
In a hyper-competitive consumer lending landscape, KMB is able to compete with solid liability profile that it is building. "The ratio of low-cost deposits at the end of the quarter rose to 50.3%
During the past quarter, while deposits Overall savings increased by 16%, the savings account and CASA (current accounts and savings) grew by 51 %.per cent respectively.While the average cost of CASA of KMB is higher by about 200bps to that of the competition of 5.6% and that it has an additional annual cost of Rs 1,600 crore, the CASA confers on him a competitive advantage in a better retail environment Thanks to its initiative 811 (digital bank ), the bank is doubling its customer base to 16 million in September
iales support
Life insurance recorded a 25% growth in new business, Kotak Securities 8.3% Kotak Mahindra Capital had a good quarter and the market share of Kotak Mutual Fund in equity rose to 3.76%
Overall, the badets under management of the Kotak group increased by 31% year on year to 1 99 193 crores.
We believe that in the future, as these non-bank activities badume a larger share of consolidated profitability (bank contribution of 65% in the first quarter19), investors could see an increase in valuations arising from the consolidated activities.
consolidate after the recent outperformance, especially if some of the business lenders testify to the decline in the quality of badets. However, for a high-quality company like KMB, any consolidation is an opportunity for long-term investors.
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