Kotak Mahindra Bank (KMB IN)

Transcription

1 (KMB IN) Rating: HOLD CMP: Rs1,177 TP: Rs1,291 October 24, 2018 Q2FY19 Result Update Change in Estimates Target Reco Change in Estimates Current Previous FY19E FY20E FY19E FY20E Rating HOLD HOLD Target Price 1,291 1,398 NII (Rs. m) 131, , , ,743 % Chng. (0.6) (2.1) Op. Profit (Rs. m)113, , , ,610 % Chng. (2.1) (2.8) EPS (Rs.) % Chng. (4.8) (4.1) Key Financials FY18 FY19E FY20E FY21E NII (Rs m) 112, , , ,525 Op. Profit (Rs m) 95, , , ,368 PAT (Rs m) 56,561 63,917 81,100 99,050 EPS (Rs.) Gr DPS (Rs.) Yield NIM RoAE RoAA P/BV (x) P/ABV (x) PE (x) CAR Key Data KTKM.BO KMB IN 52-W High / Low Rs.1,424 / Rs.983 Sensex / Nifty 34,034 / 10,225 Market Cap Rs.2,245bn/ $ 30,651m Shares Outstanding 1,907m 3M Avg. Daily Value Rs m Shareholding Pattern Promoter s Foreign Domestic Institution 8.79 Public & Others 6.51 Promoter Pledge (Rs bn) Stock Performance 1M 6M 12M Absolute Relative Pritesh Bumb priteshbumb@plindia.com Steady performance; retain HOLD Quick Pointers Steady asset quality with improved provision coverage ratio Margins continue to be under pressure as yields still lag cost of funds KMB s s lone earnings was largely in-line with expectations with PAT at Rs11.4bn (PLe: Rs11.8bn) but operating pressure felt some pressure as NII growth was slower and higher other opex offset better other income. Loan growth continued to be across segments except business banking, while deposit traction especially CASA was good. On Subs, capital market businesses were soft, while financial services businesses were seen with steady trends. Post our downgrade in Jul 18 to Hold stock has seen correction of 12% and currently trades at x core book which is still premium/at par peers and promoter stake stance still remains unclear and hence we retain HOLD rating with revised TP of Rs1,291 based 3.2x Sep-20 lending book and SOTP for subs. Better liability profile, good loan growth and steady asset quality remain key catalyst for higher valuations. Slower NII growth remains a set-back: NII grew by 16.3% YoY lagging loan growth of 21% YoY and margins pressure of 10bps QoQ to 4.2% as yields have been lagging cost of funds. Overall operating performance was better (slightly miss from estimates) on better other income as it saw good fee growth and lower staff expenses but was offset by higher other opex growth. Bank continues to invest in marketing of products across business lines and use technology as acquisition strategy which has upfront costs as well but helping improve business momentum. Loan growth momentum slightly slower; CASA remains at strong footing: Bank s loan grew by 21% YoY which was slightly slower on back of continued consciousness in SME/business banking (wholesale) and slowdown in Car loans in retail and corporate banking. Management had been mentioning risk based pricing is not appropriate in the market place and but has started improving. On Deposits, CASA grew by 30% YoY (36% YoY on daily average) with mix remaining steady at 50% as strong accretion in SA. Bank s focus has been on the <1year & lower TDs which are stickier and CASA growth to keep cost of funds on lower side especially in current environment. Asset quality steady: Bank s asset quality profile has remained broadly steady with GNPA/NNPAs at 2.15%/0.81% in Q2FY19, while PCR improved to 63%. Other stress exposure like SMA-2 also remains very miniscule at Rs1.65bn (0.09% of loans). Retain Hold as promoter stake reduction remains unclear: Prime reason for our downgrade to HOLD in previous quarter was on demanding valuations and modest earnings performance, post that stock has seen 12% correction as multiples have come off but at current multiples of x core book are still premium/at par to peers private banks and we do not see very large upside in near term especially in view of limited clarity on promoter stake. October 24,

2 NII growth of 16% was slightly slower on margin pressures Other income came in strong on back of fee income growth of 26% YoY, while treasury was muted Staff opex was lower, but other opex was up on higher marketing/advertisement expenses, acquisition cost, card related pay-outs Q2FY19 Financials Weaker NII but earnings in-line Standalone (Rs mn) Q2FY19 Q2FY18 YoY gr. QoQ gr. Interest Income 58,109 47, , Interest Expense 31,218 24, , Net interest income (NII) 26,891 23, , Other income 12,053 9, , Total income 38,944 32, , Operating expenses 17,994 15, , Staff expenses 7,452 7, , Other expenses 10,542 8, , Operating profit 20,950 17, , Total provisions 3,538 2, ,696 (24.7) Profit before tax 17,412 15, , Tax 5,995 5, , Profit after tax 11,417 9, , Balance sheet (Rs mn) Loan growth momentum was slightly slower, while deposits continued its traction Margins have been under pressure falling 10bps to 4.2% Deposits 2,058,298 1,656, ,897, Advances 1,849,403 1,525, ,769, Ratios Q2FY19 Q2FY18 Profitability ratios YoY chg (bps) QoQ chg. (bps) RoaA (12) RoaE - Calc NIM (13) 4.3 (10) Asset quality remains steady with improved PCR at 63% Asset Quality ratios Gross NPL 40,331 38, , Net NPL 15,008 19,188 (21.8) 15,271 (1.7) Gross NPL ratio (32) 2.2 (2) Net NPL ratio (45) 0.9 (5) Coverage ratio , CASA mix remained at 50% with strong growth from SA deposits. Daily average basis also CASA growth remained strong Business & Other Ratios Low-cost deposit mix (10) Cost-income ratio (99) Non int. inc / total income (13) Credit deposit ratio (224) 93.2 (339) CAR (70) Tier-I (200) 18.3 (90) October 24,

3 Overall loan book momentum was slightly slower mainly from corporate and Auto loans Auto loans are seeing aggressive pricing and hence company going cautius Biz banking continue to see stress and caution, but the small biz SME has been showing good demand Consolidated Loan Book All segments contribute to growth Loan Book (Rs mn) Q2FY19 Q2FY18 YoY gr. QoQ gr. CV/CE 170, , , Auto Loans 206, , , Personal Loans, Small biz 291, , , Home loans & LAP 360, , , Corporate 673, , , Biz Banking 185, , , Agriculture 224, , , Others 109, ,590 (0.5) 111,490 (2.2) Total Advances 2,221,720 1,877, ,133, Loan Book mix Q2FY19 Q2FY18 YoY (bps) QoQ (bps) CV/CE Auto Loans (1.3) 9.5 (0.2) Personal Loans, Small Biz Home loans & LAP Corporate (0.7) Biz Banking (1.3) 8.5 (0.1) Agriculture (0.4) Others (0.9) 5.2 (0.3) Margins remain under pressure as yields lag cost of funds rise 4.7% 4.8% 4.9% 4.8% 4.9% 5.0% 5.0% 4.7% 4.9% 4.2% 4.3% 4.4% 4.4% 4.3% NIM 4.5% 4.5% 4.6% 4.3% 4.5% 4.2% 4.4% 4.3% 4.2% 4Q13 1Q14 2Q14 3Q14 October 24,

4 CASA mix steady with continued growth on SA deposits CASA 32% 29% 29% 31% 32% 34% 36% 38% 36% 35% 31% 29% 30% 44% 39% 37% 42% 44% 51% 48% 47% 50% 50% 4Q13 1Q14 2Q14 3Q14 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Asset quality steady, PCR moves further up Gross NPA Net NPA 3Q14 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% -0.2% -0.4% Credit cost remained in tight band of 40-50bps Credit Cost 3Q14 Capital market entities see slowdown, while financial services like MF & insurance continue to do well on profitability Consol Financials (Rs mn) Consolidated performance Table Q2FY19 Q2FY18 YoY gr. QoQ gr. Standalone Bank 11,417 9, , Kotak Prime 1,390 1, ,600 (13.1) KMCC Kotak Securities 1,300 1, ,340 (3.0) International Subs (13.2) Kotak AMC Kotak Mah. Investments (49.5) Lending business 12,807 11, , Flow business 2,870 2, ,310 (13.3) Consol PAT (ex - insurance) 14,570 12, ,750 (13.0) Insurance 1,170 1, , Consolidated PAT 15,740 13, ,890 (12.0) October 24,

5 contribution Prime, securities dominate subs earnings, life biz improving Kotak Prime Kotak Sec KMCC Kotak Life AMC Intl. subs KIAL KIL 6,200 5,400 4,600 3,800 3,000 2,200 1, (200) (Rs m) Consolidated ROEs Bank to see gradual improvement in return ratios Du-pont Analysis E 2020E Net Interest Income 4.38% 4.50% 4.54% 4.84% 4.34% 4.30% 4.10% 4.14% Fees 2.02% 2.01% 2.50% 2.29% 2.15% 2.36% 2.27% 2.31% Investment profits 0.19% 0.20% 0.31% 0.17% 0.26% 0.14% 0.12% 0.11% Net revenues 6.60% 6.70% 7.35% 7.30% 6.75% 6.80% 6.48% 6.55% Operating Expense -3.33% -3.25% -3.68% -3.95% -3.19% -3.15% -2.97% -2.91% Provisions -0.22% -0.30% -0.16% -0.57% -0.40% -0.37% -0.47% -0.35% Taxes -1.01% -1.06% -1.20% -0.92% -1.05% -1.13% -1.06% -1.14% Total Costs -4.56% -4.61% -5.03% -5.44% -4.64% -4.65% -4.50% -4.41% ROA 2.04% 2.09% 2.32% 1.86% 2.10% 2.16% 1.98% 2.15% Equity/Assets 14.49% 15.35% 16.50% 15.72% 15.68% 16.35% 16.09% 15.45% ROE 14.1% 13.6% 14.0% 11.8% 13.4% 13.2% 12.3% 13.9% Change in estimates We adjust earnings on margins, opex and slowdown in capital market business (Rs mn) Old Revised % Change FY19E FY20E FY19E FY20E FY19E FY20E Net interest income 132, , , ,428 (0.6) (2.1) Operating profit 115, , , ,631 (2.1) (2.8) Net profit 66,905 84,277 63,678 80,849 (4.8) (4.1) EPS (Rs) (4.8) (4.1) ABVPS (Rs) (0.6) (1.0) Price target (Rs) 1,398 1,291 (7.7) Recommendation HOLD HOLD October 24,

6 We revise our TP to Rs1,291, (from Rs1,398) based on Sep-20 SOTP (rolled from Mar-20). Value (Rs m) Per Share (Rs) Valuation Basis Lending biz valuation 1,868, x Sep-20 book Kotak Securities 157, x Sep-20 Earnings Asset Management 121, % of AUMs KMCC 18, x Sep-20 Earnings International subsidiaries 24, x Sep-20 book Others 61, x Sep-20 Earnings Insurance 208, x EV & 22x new biz multiple Total Subsidiary Valuation 591, Sep-20 based PT 1,291 KMB Standalone one year forward P/ABV trend P/ABV 3 yr avg. avg. + 1 SD avg. - 1 SD Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 October 24,

7 Income Statement (Rs. m) Int. Earned from Adv. 189, , , ,950 Int. Earned from invt. 39,330 49,072 57,356 66,479 Others 10,875 7,779 8,684 9,943 Total Interest Income 239, , , ,371 Interest Expenses 127, , , ,846 Net Interest Income 112, , , ,525 Growth Non Interest Income 65,707 76,849 91, ,184 Net Total Income 178, , , ,708 Growth Employee Expenses 35,792 38,810 43,598 48,983 Other Expenses 46,711 56,926 66,347 77,358 Operating Expenses 82,503 95, , ,341 Operating Profit 95, , , ,368 Growth NPA Provision 7,753 10,089 11,814 13,697 Total Provisions 9,778 15,011 13,290 15,026 PBT 86,176 98, , ,342 Tax Provision 29,615 34,116 43,241 52,292 Effective tax rate PAT 56,334 63,678 80,849 98,787 Growth Balance Sheet (Rs. m) Face value No. of equity shares 1,906 1,906 1,906 1,906 Equity 9,528 9,528 9,528 9,528 Networth 491, , , ,180 Growth Adj. Networth to NNPAs 17,679 17,400 17,622 17,513 Deposits 1,926,433 2,311,719 2,750,946 3,287,380 Growth CASA Deposits 977,750 1,172,144 1,400,353 1,679,997 % of total deposits Total Liabilities 3,121,358 3,722,306 4,280,307 4,959,193 Net Advances 2,104,928 2,529,336 2,896,787 3,415,237 Growth Investments 687, , ,513 1,045,332 Total Assets 3,121,358 3,722,306 4,280,307 4,959,193 Growth Asset Quality Gross NPAs (Rs m) 40,668 42,576 45,554 48,950 Net NPAs (Rs m) 17,679 17,400 17,622 17,513 Gr. NPAs to Gross Adv Net NPAs to Net Adv NPA Coverage % Profitability NIM RoAA RoAE Tier I CRAR Source: Company Data, PL Research Quarterly Financials (Rs. m) Y/e Mar Q3FY18 Q4FY18 Q2FY19 Interest Income 50,092 53,234 54,797 58,109 Interest Expenses 26,155 27,436 28,968 31,218 Net Interest Income 23,937 25,798 25,829 26,891 YoY growth CEB 8,290 10,100 9,890 10,190 Treasury Non Interest Income 10,398 11,516 11,646 12,053 Total Income 60,490 64,750 66,443 70,162 Employee Expenses 7,342 7,664 7,204 7,452 Other expenses 8,793 9,470 9,945 10,542 Operating Expenses 16,135 17,134 17,150 17,994 Operating Profit 18,201 20,180 20,325 20,950 YoY growth Core Operating Profits NPA Provision 1,698 1,749 2,600 2,213 Others Provisions 2,128 3,069 4,696 3,538 Total Provisions 2,128 3,069 4,696 3,538 Profit Before Tax 16,073 17,110 15,629 17,412 Tax 5,541 5,870 5,380 5,995 PAT 10,532 11,241 10,249 11,417 YoY growth Deposits 1,808,260 1,926,433 1,897,440 2,058,298 YoY growth Advances 1,590,710 1,697,179 1,769,270 1,849,403 YoY growth Key Ratios CMP (Rs) 1,177 1,177 1,177 1,177 EPS (Rs) Book Value (Rs) Adj. BV (70%)(Rs) P/E (x) P/BV (x) P/ABV (x) DPS (Rs) Dividend Payout Ratio Dividend Yield Efficiency Cost-Income Ratio C-D Ratio Business per Emp. (Rs m) Profit per Emp. (Rs lacs) Business per Branch (Rs m) 2,880 3,458 4,034 4,788 Profit per Branch (Rs m) Du-Pont NII Total Income Operating Expenses PPoP Total provisions RoAA RoAE Source: Company Data, PL Research October 24,

8 Price Chart Recommendation History (Rs) Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 No. Date Rating TP (Rs.) Share Price (Rs.) 1 25-Oct-17 Accumulate 1,127 1, Jan-18 Accumulate 1,127 1, Jan-18 Accumulate 1,165 1, Apr-18 Accumulate 1,165 1, Apr-18 Accumulate 1,239 1, Jul-18 Accumulate 1,239 1, Jul-18 Hold 1,398 1, Oct-18 Hold 1,398 1,075 Analyst Coverage Universe Sr. No. CompanyName Rating TP (Rs) Share Price (Rs) 1 Axis Bank Accumulate Bank of Baroda Accumulate Bank of India Reduce Federal Bank BUY HDFC Bank BUY 2,310 1,968 6 HDFC Standard Life Insurance Company BUY ICICI Bank Accumulate ICICI Prudential Life Insurance Company BUY IDFC Bank Accumulate IndusInd Bank BUY 2,000 1, Jammu & Kashmir Bank BUY Kotak Mahindra Bank Hold 1,398 1, Max Financial Services BUY Punjab National Bank Hold SBI Life Insurance Company BUY South Indian Bank BUY State Bank of India BUY Union Bank of India Reduce YES Bank BUY PL s Recommendation Nomenclature (Absolute Performance) Buy : > 15% Accumulate : 5% to 15% Hold : +5% to -5% Reduce : -5% to -15% Sell : < -15% Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly October 24,

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