Kotak Mahindra Bank (KOTMAH) 741

Transcription

1 Result Update Rating matrix Rating : Hold Target : 750 Target Period : 12 months Potential Upside : 1% What s changed? Target Changes from 677 to 750 EPS FY17E Changed from 11.7 to 14 EPS FY18E Introduced at 16.6 Rating Unchanged Quarterly performance Crore Q4FY16 Q4FY15 YoY (%) Q3FY16 QoQ (%) NII Other Income PPP PAT Key financials (Merged) crore FY15 FY16E FY17E FY18E NII PPP PAT Valuation summary (Merged) FY15 FY16E FY17E FY18E P/E Target P/E P/ABV Target P/ABV RoA RoE Stock data Market Capitalisation crore GNPA (Q4FY16) 2838 crore NNPA (Q4FY16) 1262 crore NIM (Q4FY16) 4.4% 52 week H/L 744/586 Net worth crore Face value 5 DII holding (%) 4.7 FII holding (%) 35.9 Price performance Return % 1M 3M 6M 12M Kotak Mahindra bank HDFC Bank Axis Bank Research Analyst Kajal Gandhi kajal.gandhi@icicisecurities.com Vishal Narnolia vishal.narnolia@icicisecurities.com Vasant Lohiya vasant.lohiya@icicisecurities.com May 12, 2016 Kotak Mahindra Bank (KOTMAH) 741 Healthy performance with prudent asset quality PPP came in at 1194 crore, marginally below our estimate of 1245 crore. The variation was primarily due to lower-than-expected net interest income at 1857 crore (I-direct estimate: 1876 crore). Opex came in at 1345 crore with CI ratio at 53% during the quarter Provisions were reported at 200 crore compared to 235 crore in Q3FY16, led by funds parked in lieu of securities receipts (SR) and credit substitutes from merger of ING Vysya loan book. Asset quality has remained resilient with QoQ net GNPA addition at 148 crore with absolute GNPA at 2838 crore and GNPA ratio at 2.36% NIM witnessed a marginal improvement of 5 bps QoQ at 4.35% in Q4FY16, led by incremental CASA accretion and higher proportion of high yielding loan. The bank incurred an expense of 36 crore in Q4FY16 on higher interest outgo on ING Vysya Bank s saving deposit The credit book grew 2.9% QoQ to crore led by higher accretion in the CV/CE and home loans (including LAP). Lending to corporate segment remained flattish QoQ. Deposit accretion came in at 5.9% QoQ to crore with CASA ratio at 38% The management has provided guidance of bps credit cost in FY17E and combined advance growth of ~20% in FY17E. Credit book to grow at ~18% CAGR in FY16-18E Kotak Mahindra Bank, promoted by Uday Kotak, post receiving a licence in 2002, grew to a loan book size of crore in FY16. It has built a branch network of 1333 branches. Retail loans form ~50% of total loans, enabling KMB to earn the best NIM in industry at % led by high yielding retail loans. With the ING Vysya Bank merger, composition of the loan portfolio has been altered with retail advances proportion declining to ~42% from 50%. Accordingly, blended margins are expected to remain steady at ~4% in FY16-18E. Going ahead, credit book (merged entity) is expected to grow at 18% CAGR in FY16-18E to crore. CASA accretion to continue at healthy pace The savings rate was hiked to 6% by KMB post deregulation by RBI in September The bank increased its savings deposits from 3331 crore in March 2011 to crore by March CASA ratio improved from 28-29% in the past to ~38% in merged bank. For the combined entity, we expect deposit growth at 18.5% CAGR to crore in FY17-18E. Strong management, business model and controlled asset quality KMB had stable asset quality with NNPA ratio of 1% and negligible restructured assets. With the merger, GNPA ratio rose to 2.4%, NNPA ratio to 1.1% in FY16 but overall asset quality remains manageable. PAT in FY16 remained healthy at 2089 crore. Post merger, we expect PAT to grow at 20.7% CAGR in FY17-18E to 3043 crore. Synergy benefit to augment fundamentals; maintain HOLD rating KMB has been trading at rich valuations consistently due to its superior return ratios and NIM (RoA of ~1.8% and NIM at ~4.8-5%). For the merged entity, NIMs and RoA are expected to remain at steady at ~4-4.1% and 10.8%, respectively, in FY18E, and may continue to stay better than peers. Going ahead, CI ratio is expected to ease with integration process coming to an end. Asset quality is expected to remain prudent with GNPA seen at ~2.5% in FY17-18E. We revise our SOTP target price higher to 750 from 677 earlier as we roll over to FY18E with standalone ABV of 152. We maintain our HOLD rating on the stock. ICICI Securities Ltd Retail Equity Research

2 Variance analysis Q4FY16 Q4FY16E Q4FY15 YoY (%) Q3FY16 QoQ (%) Comments NII 1, , , , Improvement in margin led NII growth NIM (%) bps bps Other Income Fee income came in at 510 crore vs 466 crore in Q3FY16 Net Total Income 2, , , , Staff cost Integration cost of 7 crore in Q4FY16; 149 crore in FY16 Other Operating Expenses PPP 1, , , , Provision Credit cost came at 82 bps for FY16 PBT , Tax Outgo PAT , Key Metrics GNPA 2, , , , GNPA increased 6 bps QoQ to 2.36% NNPA 1, , , NNPA increased 10 bps at 1.06% Total Restructured assets Standard RA at 305 crore of which 165 crore is from ING Vysya Bank Change in estimates FY17E FY18E ( Crore) Old New % Change Introduced Comments Net Interest Income 7, , ,218.8 Pre Provision Profit 4, , ,541.8 NIM (%) bps 4.1 NIM estimate revised upwards led by CASA PAT 2, , ,042.8 ABV ( ) Assumptions Current FY15 FY16E FY17E FY18E FY17E Credit growth (%) Deposit growth (%) CASA ratio (%) NIM calculated (%) Cost to income ratio (%) GNPA ( crore) 2, , , , ,389.0 NNPA ( crore) , , , ,438.1 Slippage ratio (%) Credit cost (%) Earlier ICICI Securities Ltd Retail Equity Research Page 2

3 [ Going ahead, the management has guided ~20% growth in advance in FY17E Company Analysis Business aspects Kotak Mahindra Bank has a presence across all financial verticals, namely banking, securities, investment banking, asset management, consumer finance and life insurance. The company has a diversified product offering and has an experienced management. In the past six years, credit, deposit have grown at 26%, 29% CAGR to crore, crore, respectively, by FY15, higher than industry averages. Kotak Bank has largely been a retail lender with 64% of its loan book in retail in FY10. It has now moderated to 44% in FY15. In FY15, credit grew 24.8% YoY and deposits 26.7% YoY. In FY15, advances growth recovered with corporate banking loans surging 26% YoY while overall growth was 24.8% YoY to crore. Ex CV/CE, growth was 28.2% YoY. Deposits grew a strong 26.7% YoY to crore. Post merger, Kotak Bank s loan book was at crore with alteration in composition of loan portfolio, retail advances proportion declining to ~44% from 50%. Going ahead, we expect credit offtake at 18% CAGR in FY16-18E to crore. Exhibit 1: On YoY basis healthy business growth ( crore) Q1FY15 Q2FY15 Q3FY15 FY15 Q1FY16 Q2FY16 Q3FY16 FY16 FY17E FY18E Advances Deposits Source: Company quarterly earnings update, ICICIdirect.com Research Retail loans now constitute ~44% of total credit in standalone whereas due to auto loans of Kotak Prime, in consolidated, retail forms ~43% of total credit of crore as on FY16. Exhibit 2: Loan book movement over the years (standalone) crore Q2FY14 Q3FY14 FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Growth yoy (%) CVs and contruction eqmt Personal Loans incl small business Home loans Corporate banking Agricultural finance Others Total KMB earned the best NIM in the industry at 4.7-5% led by high yielding retail loans and working capital corporate loans. NII has grown from 1858 crore in FY10 to 4224 crore by FY15 supported by strong credit and savings deposit growth. Post merger, NIM has declined to 4.2% in Q1FY16, owing to a decline in proportion of high yield retail credit and higher interest outgo on saving account of ING Vysya Bank. However, in Q2FY16, NIM improved 12 bps QoQ due to lower cost of deposit led by higher accretion in CASA at 36.2%. In Q3FY16, NIM continued to remain steady at 4.3%. Trajectory in Q4FY16 continued with ~5 bps ICICI Securities Ltd Retail Equity Research Page 3

4 improvement in margins at 4.35%, led by increase in proportion of high yield assets and CASA. Going ahead, a change in loan mix is expected to keep blended margins at current levels. However, owing to faster addition to saving account and substantial proportion of fixed rate book with southward movement in interest rates, we expect NIM to remain broadly near ~4-4.1% in FY17-17E. Further, as integration benefits unfold with proportion of retail advances rising in overall book, NIMs are expected to revive and inch up. We have currently not factored this in. Exhibit 3: Increase in NIM led by higher CASA accretion (%) Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Series1 Q2FY15 Q3FY15 FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Source: Company quarterly earnings update, ICICIdirect.com Research Deposit franchise (branches) build-up gradually enabled KMB to maintain healthy margins of >4.5% since FY08 despite a challenging environment. In the past two or three years due to higher focus on savings deposits, CASA has been stable at 31% wherein other banks saw a decline in CASA. The combined branch network post merger is at 1298 as of December With strong CASA deposits growth at crore, branches are expected to deliver a strong performance over time. The initial cost is incurred on employees and set-up upfront. We expect deposits to grow at 18.5% CAGR to crore in FY18E, with CASA broadly remaining at the current level. Exhibit 4: Branch network grows to 1333 branches to support CASA accretion ` Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Source: Company quarterly earnings update, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 4

5 Other income growth remains strong Non interest income has grown 29% to 2612 crore in FY16. Core fee income and treasury gains enabled the bank to achieve stronger other income. Q4FY16 non-interest income was muted QoQ at 682 crore with core income at 510 crore. Change in mutual fund fees recognition from upfront to over the life, has been one of the factors impacting traction in fee income. With the alignment of banking integration, we expect noninterest income traction to remain healthy with 16.9% CAGR in FY16-18E to 3568 crore. Strong management, business model and controlled asset quality KMB s asset quality has been one of the most stable with NNPA ratio of ~1% and negligible restructured assets. This depicts the strong operational business model of the bank and the management having full control. Exhibit 5: NPA levels maintained at comfortable levels 3.0 Kotak Bank has identified total stress to the tune of 6% in erstwhile ING Vysya Bank s book, which constitutes ~2.5% of the merged entity (%) Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 FY15 Q1FY16 Q2FY16 Q3FY16 FY16E FY17E FY18E GNPA NNPA Source: Company quarterly earnings update, ICICIdirect.com Research GNPA surged QoQ by ~40 bps at 2.3% in Q1FY16 owing to merger related incremental addition of stressed assets. Kotak Mahindra Bank has identified total stress to the tune of 6% in erstwhile ING Vysya Bank s book, which constitutes 2.5% of the merged entity. In Q4FY16, asset quality remained resilient with GNPA at 2.36%, a sequential improvement of 6 bps. Standard restructured loans eased off to 305 crore (0.26% of net advances) owing to 165 crore from the erstwhile ING Vysya Bank. We expect GNPA and NNPA ratios to remain broadly stable at 2.5% and 1.0%, respectively, by FY17-18E. Credit cost came in higher at 82 bps in FY16, led by merger related provision. Going ahead, we expect credit cost to ease off and estimate it at ~70 bps in FY17-18E (management indicates ~50 bps credit cost in FY17E). ICICI Securities Ltd Retail Equity Research Page 5

6 Healthy performance of consolidated entity Exhibit 6: Consolidated profit over the years, ex-bank other subsidiaries form ~35% of PAT Q3FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Kotak Bank Kotak Securities * Kotak Mahindra Capital Kotak Prime Kotak AMC & Trust International Subsidiaries Kotak Investment advisors Kotak Mahindra Investments Kotak Mahindra Old Mutual Total (net off aflliates/minority) Exhibit 7: Profitability performance at consolidated level PAT ( crore) Q4FY16 Q4FY15 YOY (%) Q3FY16 QoQ (%) Kotak Bank Kotak Securities Kotak Mahindra Capital Kotak Prime Kotak AMC & Trust NA 4.0 NA International Subsidiaries NA Kotak Investment advisors NA Kotak Mahindra Investments Kotak Mahindra Old Mutual Total (net off equity aflliates/minority) Source: Company quarterly earnings update, ICICIdirect.com Research Kotak Prime The overall loan book has increased nearly four times in seven years from 5615 crore to crore in FY16. Kotak Prime, the next highest profit making segment, witnessed loan growth of 13% YoY to crore in Q4FY16 while car loans within the same grew 13.4% YoY to crore, thereby running down erstwhile real estate exposure. PAT declined YoY and remained flat QoQ at 130 crore. Exhibit 8: Kotak Mahindra Prime profitability on slower track Crore Q4FY16 Q3FY16 Q4FY15 YoY Gr. (%) QoQ Gr. (%) PBT PAT Loans car loans in same CAR (%) ROA (%) NET NPA -cars (%) Source: Company quarterly earnings update, ICICIdirect.com Research Exhibit 9: Kotak Prime second highest profit contributor Q4FY16 Q3FY16 Q2FY16 Q1FY16 Q4FY15 Q3FY15 Q2FY15 Q1FY15 Q4FY14 Q3FY14 Q2FY14 Q1FY14 Q4FY13 Q3FY13 Q2FY13 PBT PAT Loans car loans CAR ROA Net NPA -cars 0.40% 0.40% 0.44% 0.5% 0.4% 0.4% 0.3% 0.3% 0.3% 0.4% 0.3% 0.2% 0.2% 0.2% 0.2% ICICI Securities Ltd Retail Equity Research Page 6

7 Kotak Securities Kotak Securities (K-Sec), a KMB subsidiary, has been one of the large stock broking firms offering both retail and institutional services. It had 9% market share in FY07, which declined to as low at 2.3% currently on account of rising options volume generating lower yields and relative lower push by the broker in the same. The company clocked an average daily turnover of 3,720 crore in FY07 and was at 3920 crore in FY14, which rose to 7403 crore in Q4FY16 on the back of increased volumes in the industry. The market share has taken a knock by 20 bps in FY16 to 2.6%. The end of the JV with Goldman Sachs in May 2006 has not made any meaningful impact on its market share. Competition intensified in the recent past in the Indian broking space, which resulted in a fall in broking yields for all players. Exhibit 10: Average daily turnover trend ( Crore) Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Exhibit 11: Market share in average daily volume declined in Q4FY16 (reported) The market share of Kotak Securities declined 40 bps QoQ to 2.3% in Q4FY16 (%) Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Source: Company quarterly earnings update, ICICIdirect.com Research In Q4FY16, Kotak Securities topline declined 22% YoY to 225 crore, on lower daily volume of 7403 crore vs crore in Q4FY15. PAT was at 51 crore, 46% decline YoY owing to lower topline during the quarter. Kotak Mahindra Old Mutual Life Insurance is a 74:26 JV between Kotak Mahindra Bank and Old Mutual Life. Kotak Life had managed to capture market share of ~3%. It recorded 74% CAGR in annualised premium equivalent (APE) over FY Post FY09, after which growth collapsed, annualised premium equivalent (APE) has been hovering around 1000 ICICI Securities Ltd Retail Equity Research Page 7

8 crore till now. Annual profits touched around 229 crore as on FY15 growing from 14 crore in FY09. The life insurance performance has stabilised with traction returning in terms of new business premium accretion. After de-growing in FY14, new business premium surged 34.3% YoY in Q4FY16 to crore led by individual premium. Q4FY16 PAT was at 77 crore led by strong individual premium growth. On APE 1/10th) basis, Kotak Bank s share for FY16 is 51% (Q3FY15 34%) for first year individual premium Exhibit 12: Life insurance business statistics on APE basis market share at 51% Premium ( crore) Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Renewal Indvl Regular Group Single New Business Premium APE Solvency Ratio (%) PAT Source: Company quarterly earnings update, ICICIdirect.com Research Kotak Mahindra Asset Management Kotak AMC has grown its average AUM at 21% CAGR to crore by FY Growth continued to remain healthy at 41.8% YoY to crore in FY16. Its share of equity in total has been rising gradually from 14% in FY09 to 24% in FY14 and further inched up at 24.9in FY16. PAT came in at 25 crore in Q4FY16 compared to loss of 18 crore in Q4FY15 and 4 crore in Q3FY16 (owing to a one-time operational loss). Kotak Mahindra Capital (KMCC) The Kotak Mahindra Group carries on its investment banking business through Kotak Mahindra Capital Company (KMCC), a subsidiary of Kotak Mahindra Bank (KMB). Kotak bought the 25% stake held by Goldman Sachs in KMCC in May 2006 by paying 210 crore, making it a 100% subsidiary. KMCC has a strong presence in managing equity issuances and advising on M&A transactions and has benefited largely from the boom in investment banking activity in India. The company de-merged its principal and trading investments division (including primary dealership) in March 2007 (to free up surplus capital) and now primarily operates as a full service investment bank, offering advisory and transactional services. It earned revenue of 36 crore (28.5% QoQ) and PAT of 17 crore ( 6 crore in Q3FY16) in Q4FY16. ICICI Securities Ltd Retail Equity Research Page 8

9 Outlook and valuation KMB has been trading at rich valuations consistently due to its superior return ratios with FY15 RoA of 1.9%. It earns highest NIM in the industry. This depicts its strong operational business model and management having full control via consistent performance. With the ING Vysya Bank merger, the bank brought down the promoter stake from 40% to 34% and also added value and geographical synergies in the company. For the merged entity, NIMs and RoA are expected to remain at steady at ~4-4.1% and 10.8% in FY18E, and will continue to remain better than peers. Going ahead, CI ratio is expected to ease with integration process coming to an end. Asset quality is expected to remain prudent with GNPA seen at ~2.5% in FY17-18E. We revise our SOTP target price higher to 750 from 677 earlier as we roll over to FY18E with standalone ABV of 152. We maintain our HOLD rating on the stock. Exhibit 13: DuPont Analysis (Bank standalone) FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E Net interest income/ avg. total assets Non-interest income/ avg. total assets Non-operating profit/ avg. total assets Operating expenses/ avg. total assets Operating profit/ avg. total assets Provisions/ avg. total assets Return on avg. total assets Leverage Return on equity Exhibit 14: Valuation FY14 FY15 FY16E FY17E FY18E EPS ( ) Growth (%) P/E (x) ABV P/ABV (x) GNPA (%) RoNA (%) RoE (%) Exhibit 15: Valuation ( ) Merged Entity Company Value / share KMB (Merged entity) 604 Kotak Life 26 Kotak Mahindra Prime 61 Kotak Mahindra Capital 11 Kotak Securities 32 Kotak AUM ICICI Securities Ltd Retail Equity Research Page 9

10 Merged entity will have 441 branches in the Top 8 cities Details about merger with ING Vysya Bank (September 2014) Effective April 1, 2015, ING Vysya Bank will merge with Kotak Bank as it has received Competition Commission of India (CCI) and RBI approval for an all-stock amalgamation among the banks. Post merger, Kotak Mahindra Bank will become the fourth largest private bank with branches at 1261, business size of crore, employees at ~40000 and customers at ~10 million. With ~15.2% dilution of equity share capital, promoter holding in Kotak Mahindra Bank is expected to decline to 34% from 40% currently, in line with RBI s direction to bring down their holding to 30% by December 2016 and 20% by March Rationale for deal 1. The merger would give Kotak Bank a deeper presence in southern India as ING Vysya has two-third of its 577 branches in south. Kotak Bank has 79% of its 684 branches in western & northern region. Thus, the merger provides larger presence with minimum overlap 2. The merger would yield more liquidity with significant foreign headroom in Kotak Bank even post merger, with foreign shareholding at ~47% in the merged entity. The management indicated that they will apply to RBI for raising the foreign holding limit to 74% from 49% currently 3. The merger will allow Kotak Bank to leverage on large international corporates in India with access to overseas relationships of ING Group 4. The merger is also beneficial on the liability front as both banks have CASA ratio of ~31%. Owing to the strong SME business, ING Vysya s CA float is healthy. Further, there is large scope for garnering savings balances as Kotak Bank offers a higher rate of 5.5-6% Owing to lower NIMs and higher CI ratio of ING Vysya Bank, Kotak s banking business RoA is expected to decline to ~1.0% from 1.8% immediately. RoA can further be maintained at 1.0% in FY15-17E. However, we believe the benefits of merger synergies will accrue over time, which will enable the merged entity to clock healthy return ratios post FY17E. Exhibit 16: Combined branch network (FY15) status (Total ~1261) Branches ING Vysya Kotak Bank Kotak (Merged) West 13% 46% 31% North 22% 33% 28% South 61% 15% 36% East 4% 6% 5% Exhibit 17: Advances mix (Q3FY15) % ING Kotak Bank Merged Agri SME Large corporates Retail ICICI Securities Ltd Retail Equity Research Page 10

11 Company snapshot Target Price: Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Event Mar-03 Promoter stake was at 63% in the bank, post incorporation in 2002 May-05 Announced bonus shares May-07 In peak market, capital market related businesses were doing well and getting higher valuation multiples. Bank's market cap share in total market used tobe less FY08 Announced stock split, FV reduced to 5 from 10 Jun-09 Anand Mahindra ceased to be a promoter of the bank Feb-11 Bank aspired to be national, inorganic (route) is something that was on radar also. Thereafter, the stock saw a new rally and is rising continuously Oct-11 Savings rate de-regulated by RBI, Kotak Bank offered higher interest rate of 6% above 1 lakh and 5% below 1 lakh vs the floor of 4%. This has been very helpful in saving balance increase as it started adding crore in a quarter post this hike. Mar-12 Asset quality maintained even with a large commercial vehicle and construction equipment portfolio Jul-12 RBI asked promoters of Kotak Mahindra Bank to cut their stake in the bank to 20% from 45 % by With expectation of continuous dilution at higher multiple of BV, stock price remained on an uptrend May-13 G-sec yields spiked post Fed announcement on May 22 of its intention to taper QE and tight liquidity measures by RBI of MSF rate hike etc, impacted banks, particularly wholesale funded however Kotak Bank although being lower on CASA remained resilient Oct-13 Post liquidity tightening measures like MSF reversed by RBI, stock saw respite Nov-14 Announced merger with ING Vysya Bank in ratio of 725 shares of Kotak bank for 1000 shares of ING Vysya Bank Jan-15 Merger approved by shareholders Apr-15 Scheme of amalgamation of Kotak Mahindra Bank and ING Vysya Bank comes into effect from April 1, 2015 Top 10 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 Kotak (Uday Suresh) 31-Mar ING Bank N.V. 31-Mar Capital International, Inc. 31-Mar CPP Investment Board 31-Mar Mahindra (Anuradha) 31-Mar Capital World Investors 31-Mar Sumitomo Mitsui Banking Corp 31-Mar Stewart Investors 31-Mar Caladium Investments Pte. Ltd. 31-Mar Matthews International Capital Management, L.L.C. 31-Dec Source: Reuters, ICICIdirect.com Research Recent Activity ( crore and shares in mn) Shareholding Pattern (in %) Dec-14 Jun-15 Sep-15 Dec-15 Mar-16 Promoter FII DII Others Buys Sells Investor name Value Shares Investor name Value Shares Mahindra (Anuradha) C apital World Investors C P P Investment Board C apital R esearch G lobal Investors Norges Bank Investment Management (NBIM) S umitomo Mitsui Banking C orp J.P. Morgan Asset Management (H ong K ong) Ltd C apital International, Inc First State Investments (HK ) Ltd Stewart Investors Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 11

12 Financial summary Profit and loss statement Crore (Year-end March) FY15 FY16 FY17E FY18E Interest Earned Interest Expended Net Interest Income growth (%) Non Interest Income Net Income Operating expense Gross profit Provisions Taxes Net Profit growth (%) EPS Key Ratios (Year-end March) FY15 FY16 FY17E FY18E Valuation No. of Equity Shares EPS ( ) BV ( ) BV-ADJ ( ) P/E P/BV P/ABV Yields & Margins (%) Yield on avg earning assets Avg. cost on funds Net Interest Margins Avg. Cost of Deposits Yield on average advances Quality and Efficiency (%) Cost / Total net income Credit/Deposit ratio GNPA NNPA ROE ROA Balance sheet Crore (Year-end March) FY15 FY16 FY17E FY18E Sources of Funds Capital ESOPS Reserves and Surplus Networth Deposits Borrowings Other Liabilities & Provisions Total Applications of Funds Fixed Assets Investments Advances Other Assets Cash with RBI & call money Total Growth ratios (Year-end March) FY15 FY16 FY17E FY18E Total assets Advances Deposits Total Income Net interest income Operating expenses Operating profit Net profit Book value EPS ICICI Securities Ltd Retail Equity Research Page 12

13 ICICIdirect.com coverage universe (Banks) CMP M Cap EPS ( ) P/E (x) P/ABV (x) RoA (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E Bank of Baroda (BANBAR) Hold 36, Punjab National Bank (PUNBAN) Hold 15, State Bank of India (STABAN) Hold 139, Indian Bank (INDIBA) Hold 3, Axis Bank (AXIBAN) Hold 119, City Union Bank (CITUNI) Buy 5, DCB Bank (DCB) Hold 2, Federal Bank (FEDBAN) Hold 8, HDFC Bank (HDFBAN) 1,145 1,225 Buy 286, IndusInd Bank (INDBA) 1,070 1,060 Hold 63, Jammu & Kashmir Bk(JAMKAS) Hold 3, Kotak Mahindra Bank (KOTMAH) Hold 135, Yes Bank (YESBAN) Hold 40, ICICI Securities Ltd Retail Equity Research Page 13

14 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1 st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 14

15 ANALYST CERTIFICATION We /I, Kajal Gandhi, CA, Vasant Lohiya, CA and Vishal Narnolia, MBA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a Sebi registered Research Analyst having registration no. INH ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. 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