RESULT UPDATE KOTAK MAHINDRA...
Transcript of RESULT UPDATE KOTAK MAHINDRA...
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Kotak Mahindra Bank (KMB) reported robust performance, as Q2FY18 was characterised by crystallisation of synergy benefits (revenue and opex). Key highlight was the sustained delivery on loan growth>20% YoY (moving to pre-merger level). This, along with superior NIMs (4.3%, albeit down 20bps QoQ on competitive lending yields) and strong core fees, helped KMB register robust core revenue momentum. Meanwhile, higher opex (albeit lower than Q1FY18) and softer treasury led to marginally below estimated PAT. Asset quality continued to strengthenoverall stress (GNPLs + restructured) at 2.5% with credit cost contained at 50% YoY, raising CASA ratio to ~48%. With limited levers in credit cost & opex, sustained revenue traction will be key for RoE improvement (recent capital raising will cap RoE at low mid teens). Maintain HOLD.
Growth traction building up
Integration challenges followed by demonetisation weighed on loan growth. However,
KMBs performance over the past couple of quarters indicates that synergy benefits have
started crystallising, with loan growth crossing 20% in Q2FY18. This was led by CV, home
loans/LAP and unsecured portfolio within retail and supported by bumped-up corporate
spurt. More impressively, the liability franchise continued to strengthen (savings base has
nearly doubled over the past 2 years) and KMB is also investing heavily in digital
initiativestransforming the way business is sourced and transacted (811 is a case in
point). Even stress pool stands at comfortable level despite absorbing stress from eIVBLs
portfolio, lending comfort that credit cost will be under control. Robust franchise, limited
stress baggage, strong capital position and digital initiatives equip KMB with the
ammunition to sustain growth opportunities.
Outlook and valuations: Synergies playing out; maintain HOLD
H1FY18 performance reflects synergy benefits playing through on cost as well as revenue
fronts. With recent equity infusion, leveraging of this capital in financing business &
efficient allocation across other businesses will be critical for RoE improvement. With
significant benefits likely to flow from formalisation of financial savings, subsidiaries
could see strong business tailwinds. Valuations at 3.8x FY19E P/ABV (banking business for
RoE of 14% by FY19E) factor in fair bit of upside. Maintain HOLD/SP with TP of INR1,056.
RESULT UPDATE
KOTAK MAHINDRA BANK Growth perking up; asset quality stable
COMPANYNAME
COMPANYNAME
EDELWEISS 4D RATINGS
Absolute Rating HOLD
Rating Relative to Sector Performer
Risk Rating Relative to Sector Medium
Sector Relative to Market Overweight
MARKET DATA (R: KTKM.BO, B: KMB IN)
CMP : INR 1,011
Target Price : INR 1,056
52-week range (INR) : 1,115 / 692
Share in issue (mn) : 1,903.8
M cap (INR bn/USD mn) : 1,924 / 29,637
Avg. Daily Vol.BSE/NSE(000) : 2,268.7
SHARE HOLDING PATTERN (%)
Current Q1FY18 Q4FY17
Promoters *
30.1 30.1 32.1
MF's, FI's & BKs 8.4 8.2 7.8
FII's 39.9 40.2 38.6
Others 21.6 21.5 21.5
* Promoters pledged shares (% of share in issue)
: NIL
PRICE PERFORMANCE (%)
Stock Nifty EW Banks and
Financial Services Index
1 month 1.1 4.3 4.2
3 months 2.3 3.3 2.1
12 months 28.5 18.5 24.4
Kunal Shah +91 22 4040 7579
Prakhar Agarwal +91 22 6620 3076
Malav Simaria +91 22 6623 3357
India Equity Research| Banking and Financial Services
October 25, 2017
Financials (INR mn)
Year to March Q2FY18 Q2FY17 Growth (%) Q1FY18 Growth (%) FY17 FY18E FY19E
Net revenue 51,901 47,088 10.2 49,596 4.6 154,052 180,544 211,582
Net profit 13,406 11,393 17.7 12,437 7.8 46,707 58,534 71,968
Dil. EPS (INR) 25.4 30.8 37.8
Adj. BV (INR) 188.5 239.1 273.3
Price/ Adj book (x) * 5.1 4.0 3.5
Price/ Earnings (x) * 38.6 31.7 25.8
* adj for insurance
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Banking and Financial Services
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Asset quality holding fort
Asset quality continued to be best-in-class with GNPLs at 2.47% (2.58% in Q1FY18).
Impressively, the KMB did not have any divergence with respect to RBIs annual inspection.
Furthermore, the banks exposure to RBIs 2 lists is limited and the bank has adequately
provided for these accounts. Even then, credit cost stood at 40% YoY.
Table 1: Commercial banking Key metrics
Other business updates
Table 2: Business-wise profitability
Source: Company
(INR mn) Q2FY18 Q2FY17 Growth (%) Q1FY18 Growth (%) FY16 FY17 Growth (%)
Net interest income 23,127 19,954 15.9 22,456 3.0 69,004 81,262 17.8
Pre-provisioning profits 17,248 14,401 19.8 15,954 8.1 40,411 59,848 48.1
Provisions 2,165 1,978 9.5 2,037 6.3 9,174 8,367 (8.8)
PBT 15,083 12,423 21.4 13,916 8.4 31,237 51,481 64.8
Tax 5,140 4,290 19.8 4,789 7.3 10,339 17,366 68.0
PAT 9,943 8,133 22.3 9,127 8.9 20,898 34,115 63.2
Advances 15,25,740 12,60,150 21.1 14,23,590 7.2 11,86,650 13,60,820 14.7
Deposits 16,56,710 14,10,450 17.5 16,35,180 1.3 13,86,430 15,74,260 13.5
Year to March Q218 Q217 Growth (%) Q118 Growth (%) FY16 FY17 Growth (%)
Kotak Mahindra Bank (merged, standalone) 9,940 8,130 22.3 9,130 8.9 20,910 34,110 63.1
Kotak Mahindra Prime 1,500 1,300 15.4 1,320 13.6 5,030 5,160 2.6
Kotak Mahindra Capital Company (10) 50 (120.0) 50 (120.0) 330 460 39.4
Kotak Securities 1,180 960 22.9 1,250 (5.6) 2,510 3,620 44.2
International subsidiaries 280 310 (9.7) 170 64.7 1,050 870 (17.1)
Kotak Mahindra AMC & Trustee Co 230 70 228.6 150 53.3 720 550 (23.6)
Kotak Mahindra Investments 550 530 3.8 450 22.2 1,550 1,970 27.1
Total consolidated profit after tax 13,650 11,300 20.8 12,510 9.1 32,040 46,500 45.1
Equity affi l iates/Minority int & others (240) 100 NA (70) NA 50 (120) NA
PAT (excluding life insurance) 13,410 11,400 17.6 12,440 7.8 32,090 46,380 44.5
Kotak Life Insurance 1,000 630 58.7 1,030 (2.9) 2,510 3,030 20.7
PAT 14,410 12,030 19.8 13,470 7.0 34,600 49,410 42.8
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Kotak Mahindra Bank
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Life insurance: Growth momentum maintained
Life insurance sustained a fairly good quarter with individual WRP registering >30% YoY
growth. However, lower contribution from group business (down >1% YoY) restricted
NBP to INR6.9bn (up 16.6 % YoY). The improvement also seems to have percolated to
renewal premiums (up >26% YoY), leading to ~16% YoY growth in gross written
premium.
Life insurance business reported PAT of INR1bn (INR1bn in Q1FY18, INR3bn in FY17 and
INR2.5bn in FY16).
Solvency ratio came in at 308% (304% in Q1FY18 and regulatory requirement of 150%).
The bank has acquired Old Mutuals 26% stake in Kotak Life for INR12.93bn.
Table 3: Kotak Life InsuranceKey metrics
Source: Company
Kotak Mahindra Prime: Back on growth track
The quarter was characterised by strong 15% YoY growth in overall car financing
portfolio (to INR198bn). This, along with strong growth in capital market related lending
in Q2FY18, led to overall customer asset growth of >21% YoY. Management expects
growth to gain traction given a few new initiatives (launched consumer durable
financing business through KMP).
There was some rise in stress pool with NNPLs at 41bps (36bps in Q1FY18).
Table 4: Kotak Mahindra Prime Key metrics
Source: Company
Kotak Securities: Steady performance
Average daily trading volumes (ADTV) came in at INR124bn (up >36% YoY/13% QoQ),
leading to market share of 1.9% (stable QoQ).
Revenue and PAT came in at INR3.5bn (up ~19.4% YoY) and INR1.2bn (up >22% YoY),
respectively.
Table 5: Kotak SecuritiesKey metrics
Source: Company
(INR mn) Q2FY18 Q2FY17 Growth (%) Q1FY18 Growth (%) FY16 FY17 Growth (%)
New Business premium 6,870 5,890 16.6 4,820 42.5 22,100 28,500 29.0
Profit (INR mn) 1,000 630 58.7 1,030 (2.9) 2,510 3,030 20.7
(INR mn) Q2FY18 Q2FY17 Growth (%) Q1FY18 Growth (%) FY16 FY17 Growth (%)
PBT 2,290 1,980 15.7 2,030 12.8 7,720 7,870 1.9
PAT 1,500 1,300 15.4 1,320 13.6 5,020 5,160 2.8
Auto advances 1,98,310 1,72,490 15.0 1,83,720 7.9 1,67,070 1,81,780 8.8
(INR mn) Q2FY18 Q2FY17 Growth (%) Q1FY18 Growth (%) FY16 FY17 Growth (%)
Revenues 3,510 2,940 19.4 3,650 (3.8) 9,730 11,850 21.8
PBT 1,770 1,440 22.9 1,870 (5.3) 3,800 5,430 42.9
PAT 1,180 960 22.9 1,250 (5.6) 2,510 3,620 44.2
PAT margin (%) 33.6 32.7 34.2 25.8 30.5
Avg daily volumes (INR bn) 124 91 36.8 110 13.0 73 90 22.6
Branches 1,454 1,273 14.22 1,455 (0.1) 1,209 1,281 6.0
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Asset management: AUM growth momentum sustained
AUM growth extended traction, growing >55% YoY. AUMs crossed the INR1.1-tn mark
with equity AUMs amounting to INR369bn (up >21% QoQ).
Meanwhile, given that cost in AMC is not amortised, faster growth in business leads to
strain on profitability. Consequently, profitability was soft with PBT at INR340mn (albeit
improving) and PAT came in at INR230mn (INR150mn in Q1FY18 and INR550mn in
FY17).
Table 6: Domestic asset management businessKey metrics
Source: Company
Investment banking: Volatility persists
Kotak Mahindra Capital Company (KMCC), the investment banking division, reported
loss of INR10mn (INR50mn in Q1FY18, INR460mn in FY17 and INR320mn in FY16).
While the division has several mandates in the pipeline (ECM and advisory), it remains
to be seen how much it will contribute to bottom line.
Table 7: Kotak Mahindra Capital CompanyKey metrics
Source: Company
Table 8: SoTP valuation (FY19E)
Source: Edelweiss research
(INR mn) Q2FY18 Q2FY17 Growth (%) Q1FY18 Growth (%) FY16 FY17 Growth (%)
PBT 340 110 209.1 210 61.9 900 840 (6.7)
PAT 230 70 228.6 150 53.3 730 550 (24.7)
AUMs 11,08,320 7,06,260 56.9 10,14,140 9.3 5,87,310 9,24,400 57.4
(INR mn) Q2FY18 Q2FY17 Growth (%) Q1FY18 Growth (%) FY16 FY17 Growth (%)
Total income 150 250 (40.0) 270 (44.4) 1,140 1,360 19.3
PBT (20) 60 NA 80 NA 460 610 32.6
PAT (10) 50 NA 50 NA 320 460 43.8
Method
AUMs /
earnings /
book
Multiple
(x)
Value of business
(INR mn)
Kotak Bank's
holding
Value
(INR mn)
Value per
share
(INR)
Bank PABV 3,92,252 4.0 15,69,006 100 15,69,006 825
Prime PABV 47,847 3.2 1,67,464 100 1,67,464 88
Life insurance Appraisal value 65,698 100 65,698 35
Securities / Invt banking PE 7,118 15.0 1,06,775 100 1,06,775 56
MF/Offshore AUMs/PE % of AUM 19,10,369 5.2 99,713 100 99,713 52
Total 20,08,656 20,08,656 1,056
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Financial snapshot (INR mn) Year to March Q2FY18 Q2FY17 % change Q1FY18 % change YTD18 FY18E FY19E
Interest income 60,729 55,337 9.7 59,352 2.3 120,080 275,793 322,699 Interest exp 29,876 28,694 4.1 29,306 1.9 59,182 154,285 179,094
Net int. inc. 30,853 26,642 15.8 30,045 2.7 60,898 121,508 143,605
Non interest income 21,048 20,446 2.9 19,551 7.7 40,600 59,036 67,977
Net revenues 51,901 47,088 10.2 49,596 4.6 101,497 180,544 211,582
Non interest expenses 28,375 27,574 2.9 28,035 1.2 56,410 81,337 91,234
Pre-provision profit 23,526 19,514 20.6 21,561 9.1 45,087 99,207 120,348
Provisions 2,529 2,179 16.0 2,322 8.9 4,851 10,257 11,568
Profit before tax 20,997 17,335 21.1 19,239 9.1 40,237 88,950 108,779
Tax 7,113 5,852 21.5 6,638 7.2 13,751 29,266 35,811
Core profit 13,884 11,483 20.9 12,602 10.2 26,486 59,684 72,968
Minorities/affiliates (479) (89) NA (165) NA (643) (1,150) (1,000)
PAT 13,406 11,393 17.7 12,437 7.8 25,843 58,534 71,968
Diluted EPS (INR) 7.6 6.5 15.6 7.2 5.1 14.8 30.8 37.8
Ratios (%)
NII/GII 50.8 48.1 50.6 50.7 44.1 44.5
Cost/income 54.7 58.6 56.5 55.6 45.1 43.1
Provisions / PPOP 10.7 11.2 10.8 10.8 10.3 9.6
Tax rate 33.9 33.8 34.5 34.2 32.9 32.9
Valuation metrics
Adj book value / share 239.1 273.3
Price/ Adj. book (x) 4.0 3.5
Price/ Earnings 31.7 25.8
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Key highlights of Q2FY18 concall takeaways
With respect to growth
Management believes that recpitalisation is like a steroid for the economy and would
potentially kick start economic reform process. PSU Banks will be able to take the
bolder steps even if this means to take higher haircut (as now they will have ability
and capital to do so). This will also open more opportunity for distress asset as well.
For the quarter was pegged at >20% YoY, across various area. The bank continues to
maintain the growth guidance of 20% plus for FY18 ( even accounting for the
announcement yesterday).
o Corporate segment grew > 26% growth (largely gaining market share). This is due
to both deepening of presence in high quality corporate and new customer
acquisition in mid-corporate segment. The bank continues to remain confident of
clocking 20-25% growth.
o Agri, home loan/LAP and unsecured portfolio (business loans/PL/CCs) witnessed
sharp momentum this quarter. The management believes that consumption story
will continue.
o CV/CE saw a very good growth during the quarter up >33% YoY (all segment of
CVs has seen growth expect for small CV portfolio).
CASA deposit now standing. SA has registered a strong 60% growth, this has some
element of lumpy government business. The core saving growth ( ex-government
savings) is still > 40%.
Opex during the quarter was relatively higher (albeit lower sequentially) due to a) the
marketing and advertising expenses related to 811 scheme and b) acquisition of some
PSLCs.
This is the first year wherein the bank sees first time the revenue synergies has started
to play out, having said that banks still believe there is some more way to go.
The bank sees the challenges continuing in SME space and which is why the bank is
growing cautiously in this segment (reflected in softer business banking growth).
With respect of asset quality
The bank has nothing to report on divergence, based on t he RBI review for FY17.
In terms of accounts under NCLT: The bank had exposure to 4 accounts (from eIVBL
book) in first list. In terms of the second list, the exposure are relatively small and
bank highlighted that they are very adequately provided for.
Credit cost in line with guidance. The bank see it at levels of trending down from FY17
levels of 61bps. The bank maintained the same guidance.
SMA-2 at INR2.5bn (0.16% of advances) , versus INR3.05bn in previous quarter.
There was no sale to ARC during the quarter. The bank doesnt believe in selling for SRs,
bank will sell only on cash basis if any.
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Kotak Mahindra Bank
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With respect to digital banking updates:
Traction in 811 is going strong: ~10.5 mn customers.
Within the customers acquired through 811 : a) 91% is within 18-35 years ( far more
digital savvy customers and can be leveraged) b) 45% are salaried and c) 63% are
from top 20 cities
Monthly transactions on mobile more than doubled.
Digital contribution in overall sourcing one of the highest in the Industry
o ~77% - Recurring Deposit sourced digitally
o ~60% - Term Deposit sourced digitally
o ~29% of the Salaried Personal Loan is through digital share
Other highlights
There were some interest income reversal on agri. portfolio which has impacted the
NIMs during the quarter. The bank maintained the NIMs guidance of 4.25% (which bank
feels is more sustainable level). The bank is seeing yield pressure on higher quality
corporate (substitution effect playing through), having said that the bank will focus on
quality business and will continue to look at risk adjusted margins.
The company now own 100% of the life insurance business. It acquired 26% stake in life
insurance business for INR12.93bn. The bank has concluded acquisition of BSS
Microfinance.
As of now the fixed rate book is 30% and of the balance 70% (floating book), the bank
has MCLR linked loans at 70%.
The banks believe that under IFRS the banks net-worth would be higher than current
reported net-wroth.
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Banking and Financial Services
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Key highlights of Q1FY18 concall takeaways
With respect to growth
For the quarter was pegged at 19% YoY, across various area. Bank has highlighted that
they are Internally well geared to capture opportunities (integration challenges are well
behind), however, external environment continues to be softer (private expenditure is
still not happening).
o Corporate segment grew > 20% growth (largely gaining market share). This is due
to both deepening of presence in high quality corporate and new customer
acquisition in mid-corporate segment. The bank continues to remain confident of
clocking 20-25% growth.
o Agri, home loan/LAP and unsecured portfolio (business loans/PL/CCs) witnessed
sharp momentum this quarter. The management believes that consumption story
will continue (pre-GST saw huge boost and that trend is continuing).
o CV/CE saw a very good growth during the quarter up 43% YoY (all segment of CVs
has seen growth expect for small CV portfolio). This has been one of the focus area
for the bank over last 1-1.5 years and the investment done earlier is now reaping
benefits (the bank has increased market share on month on month basis).
o Quarter did see some slowdown in agri and business banking division ( view of the
transition towards GST environment)
The bank has raised capital in May, and stated that they will continue to evaluate
opportunities on both organic and inorganic routes.
New sales of tractor has been good over last 3months. There has been Issues in
collection due to DeMon and farm loan waiver, but the condition is now improving and
so are the sales. Having said that the bank is gaining market share.
Opex during the quarter was higher due to a) the marketing and advertising expenses
related to 811 scheme ( totalling to INR630mn, bulk of the initial spending happened in
April and thus is non-recurring in nature) and b) acquisition of some PSLCs.
Core fee income growth has been very string . the growth is more broad based in
nature and linked to business activities and thus expects the momentum to continue.
With respect of asset quality
With respect to accounts referred to NCLT
o Bank has total exposure of INR2.36bn toward 4 accounts ( out of the of 12
accounts referred by RBI to NCLT).
o Bank highlighted that all the 4 accounts were inherited from ING Vysya Bank
(Kotak Mahindra bank had no exposure towards these on standalone balance
sheet) at merger on April 1, 2015 ( and these accounts along with others were
taken into consideration while deciding on valuations). Also the bank highlighted
that the provisions well in excess of RBI mandate.
o For the banking system, the management sees increasing credit cost for the system
on account of reference of cases to IBC.
RWA has not risen significantly from previous quarter. The average rating of the
corporate portfolio will be around A/A+.
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Kotak Mahindra Bank
9 Edelweiss Securities Limited
During the quarter bank has a credit cost of 57bps. The bank maintained the guidance
that the credit cost will directionally move downward from FY17 levels ( essentially
suggesting < 60bps of credit cost)
SMA -2 accounts stood at INR3.05bn (versus 1.3bn in Q4FY17).
With respect to digital banking updates:
Traction in 811 is going strong: >9 mn customers. 55% of bank active customers are
digitally active.
Within the customers acquired through 811 : a) 82% is within 18-35 years ( far more
digital savvy customers and can be leveraged) b) 47% are salaried and c) 63% are from
top 20 cities
Monthly transactions on mobile more than doubled to INR60bn.
Digital contribution in overall sourcing one of the highest in the Industry
o ~70% - Recurring Deposit sourced digitally
o ~60% - Term Deposit sourced digitally
o ~20% of the Salaried Personal Loan is through digital share
o > 50% individual life insurance policies sourced through Genie
o > 20% of general insurance business sourced through digital channels
With respect to other business
AMC business: Cost in the AMC is not amortised thus the faster growth in business
leads to the strain in the business.
Kotak Prime: Large part of asset is car finance, and FY17 saw some pressure on margins
thus profitability was under pressure. Q1FY18, saw some improvement in NIMs and
consequent improvement profitability. Bank suggests that this improvement in NIMs
will sustain henceforth. Meanwhile the other than car loans grew sharply during the
quarter due to capital markets related lending.
Kotak Life : The bank keeps on evaluating various options at different point in time.
Having said that at this stage there is No intent to open bancassurance (as a bank
platform) to other partner.
Other highlights
Formal financial savings has seen a significant benefit- reflected in growth seen not
only in liability, but also in AMC, life insurance and capital market business. Looking
ahead overall financial services business has huge growth opportunity .
The bank has agreed to acquire Old Mutual 26% Stake in Kotak Life and is awaiting
regulatory approvals
The bank has received regulatory approvals to acquire BSS Microfinance ( will conclude
the deal by this quarter) . BSS has been growing , while asset quality saw some hiccup
but this is improving.
Launched consumer durable financing business through KMP , the aim is to slowly build
the business and then grow.
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Banking and Financial Services
10 Edelweiss Securities Limited
Company Description
KMB is Indias leading full services financial conglomerate, dominating the securities and
investment banking space. It is currently focused on growing its banking, asset
management, and insurance businesses. It began operations in 1986 as a bill discounting
and leasing NBFC under Kotak Mahindra Finance and converted itself into a bank in 2003.
The group has a widespread presence across 1,362 branches. The group has a decent
platform to cross-sell its products, given its presence in the financial spectrum. Kotak
Securities has 1.9% market share in overall market volumes and is one of the prominent
domestic investment bankers. It is developing its presence in the asset management and
insurance businesses.
Investment Theme
Given limited levers on credit cost & opex, we anticipate revenue traction to be key for RoE
improvement. Robust liability franchise (CASA + retail TD), rating upgrade (to AAA), CD ratio
at lower level will help sustain high NIMs, however it will be critical to step on growth pedal
to translate into respectable RoEs.. With recent equity infusion (INR58bn), leveraging of this
capital in financing business and efficient allocation across other businesses will be critical
for RoE improvement. Valuations at 3.8x FY19E P/ABV (banking business for RoE of 14% by
FY19E) factor in fair bit of upside. Hence, we maintain HOLD/SP.
Key Risks
Continued stress in the economy and hence the CV/CE portfolio can moderate the growth
prospects of the bank.
Depressed capital markets can impact the profitability of investment banking and securities
business.
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Kotak Mahindra Bank
Financial Statements (Banking merged entity)
(INRmn)
Year to March FY16 FY17 FY18E FY19E
Net Interest income 67,867 83,070 99,631 119,752
Non interest income 27,358 32,794 36,210 41,374
Net revenues 95,225 115,863 135,842 161,126
Operating expense 54,750 56,248 62,822 70,374
Preprovision profit 40,475 59,615 73,020 90,752
Provisions 8,890 8,102 9,131 10,282
PBT 31,585 51,513 63,889 80,469
Taxes 10,687 17,397 21,579 27,185
PAT 20,898 34,116 42,310 53,284
Income statement
(%)
Year to March FY16 FY17 FY18E FY19E
ROA decomposition (%)
Net Int. Inc./Assets 3.8 4.2 4.3 4.3
Fees/Assets 1.4 1.5 1.5 1.4
Inv. profits/Assets 0.1 0.2 0.1 0.1
Net revenues/Assets 5.3 5.8 5.8 5.8
Operating Exp./Assets (3.0) (2.8) (2.7) (2.5)
Provisions/Assets (0.5) (0.4) (0.4) (0.4)
Taxes/Assets (0.6) (0.9) (0.9) (1.0)
Total Costs/Assets (4.1) (4.1) (4.0) (3.9)
ROA 1.2 1.7 1.8 1.9
Equity/Assets 12.4 12.3 13.3 13.7
ROAE 9.4 13.9 13.7 13.9
Ratios
(INRmn)
As on 31st March FY16 FY17 FY18E FY19E
Liabilities
Equity capital 9,172 9,205 9,515 9,515
Reserves 221,205 251,979 348,181 396,888
Net worth 230,376 261,184 357,696 406,403
Sub bonds/pref cap 501 501 501 501
Deposits 1,386,427 1,574,258 1,867,387 2,271,729
Borrowings 253,234 262,916 295,020 349,846
Other liabilities 56,167 62,990 73,004 83,799
Total 1,926,707 2,161,849 2,593,608 3,112,277
Assets
Loans 1,186,668 1,360,836 1,636,675 1,980,886
Investments 582,516 611,274 745,508 900,481
Gilts 396,644 412,951 511,218 619,944
Others 185,872 198,324 234,291 280,536
Cash & equi 114,046 143,300 159,566 172,498
Fixed Assets 15,819 15,289 14,603 13,760
Other Assets 27,657 31,149 37,255 44,652
Total 1,926,707 2,161,849 2,593,608 3,112,277
Balance sheet
(INR)
Year to March FY16 FY17 FY18E FY19E
EPS 11.4 18.5 22.2 28.0
EPS growth (%) (64.8) 62.7 20.0 25.9
Book value per share 125.6 141.9 188.0 213.6
Adjusted BV/share 122.0 137.3 182.1 207.7
Valuation Metrics
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12 Edelweiss Securities Limited
Banking and Financial Services
Financial Statements
Income statement (INR mn)
Year to March FY16 FY17 FY18E FY19E
Interest income 215,167 241,187 275,793 322,699
Interest expended 130,201 139,268 154,285 179,094
Net interest income 84,966 101,919 121,508 143,605
Non interest income 43,461 52,133 59,036 67,977
- Fee & forex income 31,506 37,673 44,614 52,499
- Misc. income 11,865 14,371 14,332 15,388
- Investment profits 90 90 90 90
Net revenue 128,427 154,052 180,544 211,582
Operating expense 69,513 73,075 81,337 91,234
- Employee exp 33,008 33,655 37,029 41,221
- Other opex 36,505 39,420 44,308 50,014
Preprovision profit 58,914 80,977 99,207 120,348
Provisions 9,805 9,299 10,257 11,568
Profit Before Tax 49,109 71,677 88,950 108,779
Less: Provision for Tax 15,992 23,670 29,266 35,811
Profit After Tax 32,318 46,707 58,534 71,968
Adj. Diluted EPS (INR) 17.6 25.4 30.8 37.8
Dividend per share (DPS) 2.1 3.4 4.1 5.1
Dividend Payout Ratio(%) 6.3 7.1 7.1 7.2
Growth ratios (%)
Year to March FY16 FY17 FY18E FY19E
NII growth 9.0 20.0 19.2 18.2
Fees growth 10.6 19.6 18.4 17.7
Opex growth 10.5 5.1 11.3 12.2
PPP growth 0.7 37.4 22.5 21.3
Provisions growth 83.3 (5.2) 10.3 12.8
Adjusted Profit (6.4) 44.5 25.3 23.0
Balance sheet (INR mn)
As on 31st March FY16 FY17 FY18E FY19E
Share capital 9,172 9,205 9,515 9,515
Reserves & Surplus 304,028 346,202 456,611 521,688
Net worth 313,200 355,407 466,125 531,203
Deposits 1,386,427 1,574,258 1,867,387 2,271,729
Total Borrowings 666,581 619,712 698,771 806,769
Other liabilities 2,835 3,285 3,826 4,474
Total liabilities 2,369,043 2,552,662 3,036,109 3,614,175
Loans 1,212,421 1,390,375 1,670,645 2,020,025
Investments 593,914 622,843 757,256 912,416
Cash and Equivalents 245,971 183,556 200,444 214,055
Fixed assets 16,508 15,954 15,234 14,349
Other Assets 300,229 339,933 392,529 453,330
Total assets 2,369,043 2,552,662 3,036,109 3,614,175
Key Assumptions
Year to March FY16 FY17 FY18E FY19E
Macro
GDP(Y-o-Y %) 7.9 6.6 6.8 7.4
Inflation (Avg) 4.9 4.5 4.0 4.5
Repo rate (exit rate) 6.8 6.3 5.8 5.8
USD/INR (Avg) 65.5 67.1 65.0 66.0
Sector
Credit growth 9.3 9.0 12.0 14.0
Deposit growth 8.6 14.0 12.0 13.0
CRR 4.0 4.0 4.0 4.0
SLR 20.8 20.0 20.0 20.0
G-sec yield 7.5 6.5 6.5 6.5
Company
Banking business assump.
Credit growth 9.5 14.7 20.1 20.9
Deposit growth 12.4 13.5 18.6 21.7
Yield on advances 11.6 11.8 11.5 11.2
Cost of funds 6.7 6.3 6.1 6.0
CASA 38.1 44.0 44.5 45.1
Slippages 1.3 1.3 1.3 1.3
Securities bus. Assump.
Avg Daily Trading Vol. 73,302 89,834 104,272 120,866
Commission yields 2.0 2.0 2.0 2.0
PMS AUMs 79,506 95,407 114,488 137,386
Investment Banking assumption
Fin adv. & transact. fee 960 1,176 1,409 1,635
Operating margin 23.6 42.6 47.5 49.7
Kotak Prime assumption
Advance growth 18.8 13.0 14.8 14.8
Yield on advances 12.9 12.5 12.2 11.9
Cost of funds 8.7 8.5 8.4 8.3
Gross NPLs 1.2 1.4 1.5 1.6
Kotak AMC
AUM growth 43.9 41.0 47.0 25.0
Management fees 0.4 0.3 0.3 0.3
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13 Edelweiss Securities Limited
Kotak Mahindra Bank
Peer comparison valuation
Market cap Diluted P/E (X) Price/ Adj. BV (X) ROAE (%)
Name (USD mn) FY18E FY19E FY18E FY19E FY18E FY19E
Kotak Mahindra Bank 29,637 31.7 25.8 4.0 3.5 14.5 14.6
Axis Bank 17,470 25.2 13.0 2.2 1.9 7.9 14.1
DCB Bank 841 20.3 16.5 2.2 1.9 11.8 11.9
Federal Bank 3,627 20.8 16.7 2.0 1.8 10.6 10.9
HDFC Bank 71,383 25.2 20.8 4.5 3.8 18.9 19.5
ICICI Bank 30,215 16.4 12.0 2.6 2.2 11.9 14.9
IndusInd Bank 14,689 26.0 20.7 4.1 3.5 16.5 17.9
Karnataka Bank 908 8.6 7.1 0.9 0.8 9.6 10.8
Yes Bank 11,533 3.5 2.6 0.6 0.5 18.2 20.3
Median - 20.8 16.5 2.2 1.9 11.9 14.6
AVERAGE - 19.9 15.1 2.6 2.3 13.3 15.0
Source: Edelweiss research
Valuation parameters
Year to March FY16 FY17 FY18E FY19E
Adj. Diluted EPS (INR) 17.6 25.4 30.8 37.8
Y-o-Y growth (%) (60.6) 44.0 21.2 23.0
BV per share (INR) 170.7 193.1 245.0 279.2
Adj. BV per share (INR) 167.2 188.5 239.1 273.3
Diluted P/E (x) 57.4 39.8 32.9 26.7
Price/ BV (x) 5.9 5.2 4.1 3.6
Dividend Yield (%) 0.2 0.3 0.4 0.5
Price/Earnings (x) * 55.7 38.6 31.7 25.8
Price/ BV (x) * 5.8 5.1 4.0 3.5
* adj. for insurance
RoE decomposition (%)
Year to March FY16 FY17 FY18E FY19E
Net int. income/assets 3.8 4.2 4.4 4.3
Fees/Assets 1.9 2.1 2.1 2.1
Net revenues/assets 5.7 6.3 6.5 6.4
Operating expense/assets 3.1 3.0 2.9 2.8
Provisions/assets 0.4 0.4 0.4 0.3
Taxes/assets 0.7 1.0 1.1 1.1
Total costs/assets 4.3 4.3 4.3 4.2
ROA 1.5 2.0 2.1 2.2
Equity/assets 13.5 13.7 14.8 15.1
ROAE (%) 11.0 14.4 14.5 14.6
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14 Edelweiss Securities Limited
Banking and Financial Services
Holding - Top 10
Perc. Holding Perc. Holding
Capital Group Companies 10.19 Canada Pension Plan Investment Board 6.05
Commonwealth Bank of Australia 4.24 ING Mauritius Investments 3.74
Sumitomo Mitsui Financial Group 1.72 Massachusetts Mutual Life Insurance 1.47
SBI Funds Management 1.39 Caladium Investment 1.36
Matthews International Capital Management 1.30 Standard Life Aberdeen 1.23
*as per last available data
Insider Trades Reporting Data Acquired / Seller B/S Qty Traded
07 Apr 2017 ANUPAMA ACHIA Sell 16000.00
07 Apr 2017 Prasad Jagajit Mangal Sell 40000.00
06 Apr 2017 Prasad Jagajit Mangal Sell 40000.00
27 Mar 2017 Mahesh Dayani Sell 150000.00
24 Mar 2017 Ashok Baswa Rao Sell 20000.00
*in last one year
Bulk Deals Data Acquired / Seller B/S Qty Traded Price
29 Mar 2017 Mahindra Family Trust I Buy 740590 860.00
29 Mar 2017 Anand Mahindra Family Trust Sell 740590 860.00
29 Mar 2017 Mahindra Family Trust Ii Buy 1584990 860.00
29 Mar 2017 Anuradha Mahindra Family Trust Sell 1584990 860.00
08 Mar 2017 Caisse De Depot Et Placement Du Quebec Buy 18400000 817.00
08 Mar 2017 Canada Pension Plan Investment Board Buy 9200000 817.00
08 Mar 2017 KEDAR S. MANKEKAR Buy 150000 825.00
08 Mar 2017 MANKEKAR LAXMI SHIVANAND Buy 358820 825.00
08 Mar 2017 OM KEDAR INVESTMENTS Sell 508820 825.00
08 Mar 2017 Uday Suresh Kotak Sell 27600000 817.00
*in last one year
Additional Data Directors Data Dr. Shankar Acharya Non-Executive Chairman Uday Kotak Executive Vice Chairman & MD
Dipak Gupta Joint Managing Director C. Jayaram Director
Amit Desai Director Uday Chander Khanna Director
Prof. S. Mahendra Dev Director Farida Khambata Director
Mark Edwin Newman Director Prakash Apte Director
Auditors - S. R. Batliboi & Co. LLP
*as per last annual report
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15 Edelweiss Securities Limited
Company Absolute
reco
Relative
reco
Relative
risk
Company Absolute
reco
Relative
reco
Relative
Risk
Allahabad Bank HOLD SU M Axis Bank BUY SO M
Bajaj Finserv HOLD SP L Bank of Baroda BUY SP M
Bharat Financial Inclusion BUY SO M Capital First BUY SO M
DCB Bank HOLD SP M Dewan Housing Finance BUY SO M
Equitas Holdings Ltd. BUY SO M Federal Bank BUY SP L
HDFC HOLD SP L HDFC Bank BUY SO L
ICICI Bank BUY SO L IDFC Bank HOLD SP L
Indiabulls Housing Finance BUY SP M IndusInd Bank BUY SP L
Karnataka Bank BUY SP M Kotak Mahindra Bank HOLD SP M
L&T FINANCE HOLDINGS LTD BUY SO M LIC Housing Finance BUY SP M
Magma Fincorp BUY SP M Mahindra & Mahindra Financial Services HOLD SU M
Manappuram General Finance BUY SO H Max Financial Services BUY SO L
Multi Commodity Exchange of India BUY SP M Muthoot Finance BUY SO M
Oriental Bank Of Commerce HOLD SP L Power Finance Corp BUY SO M
Punjab National Bank BUY SP M Reliance Capital BUY SP M
Repco Home Finance BUY SO M Rural Electrification Corporation BUY SO M
Shriram City Union Finance BUY SO M Shriram Transport Finance BUY SO L
South Indian Bank BUY SP M State Bank of India BUY SP L
Union Bank Of India HOLD SP M Yes Bank BUY SO M
RATING & INTERPRETATION
ABSOLUTE RATING
Ratings Expected absolute returns over 12 months
Buy More than 15%
Hold Between 15% and - 5%
Reduce Less than -5%
RELATIVE RETURNS RATING
Ratings Criteria
Sector Outperformer (SO) Stock return > 1.25 x Sector return
Sector Performer (SP) Stock return > 0.75 x Sector return
Stock return < 1.25 x Sector return
Sector Underperformer (SU) Stock return < 0.75 x Sector return
Sector return is market cap weighted average return for the coverage universe
within the sector
RELATIVE RISK RATING
Ratings Criteria
Low (L) Bottom 1/3rd percentile in the sector
Medium (M) Middle 1/3rd percentile in the sector
High (H) Top 1/3rd percentile in the sector
Risk ratings are based on Edelweiss risk model
SECTOR RATING
Ratings Criteria
Overweight (OW) Sector return > 1.25 x Nifty return
Equalweight (EW) Sector return > 0.75 x Nifty return
Sector return < 1.25 x Nifty return
Underweight (UW) Sector return < 0.75 x Nifty return
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16 Edelweiss Securities Limited
Banking and Financial Services
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai 400 098.
Board: (91-22) 4009 4400, Email: [email protected]
Aditya Narain
Head of Research
Coverage group(s) of stocks by primary analyst(s): Banking and Financial Services
Allahabad Bank, Axis Bank, Bharat Financial Inclusion, Bajaj Finserv, Bank of Baroda, Capital First, DCB Bank, Dewan Housing Finance, Equitas Holdings Ltd., Federal Bank, HDFC, HDFC Bank, ICICI Bank, IDFC Bank, Indiabulls Housing Finance, IndusInd Bank, Karnataka Bank, Kotak Mahindra Bank, LIC Housing Finance, L&T FINANCE HOLDINGS LTD, Max Financial Services, Multi Commodity Exchange of India, Manappuram General Finance, Magma Fincorp, Mahindra & Mahindra Financial Services, Muthoot Finance, Oriental Bank Of Commerce, Punjab National Bank, Power Finance Corp, Reliance Capital, Rural Electrification Corporation, Repco Home Finance, State Bank of India, Shriram City Union Finance, Shriram Transport Finance, South Indian Bank, Union Bank Of India, Yes Bank
Distribution of Ratings / Market Cap
Edelweiss Research Coverage Universe
Rating Distribution* 161 67 11 240 * 1stocks under review
Market Cap (INR) 156 62 11
Date Company Title Price (INR) Recos
Recent Research
25-Oct-17 Banking Mega recapitalisation: The much needed succor; Sector Update
25-Oct-17 HDFC Bank On a strong footing; Result Update
1,867 Buy
23-Oct-17 IndiaBulls Housing Finance
Consistency at play; Result Update
1,338 Buy
> 50bn Between 10bn and 50 bn < 10bn
Buy Hold Reduce Total
Rating Interpretation
Buy appreciate more than 15% over a 12-month period
Hold appreciate up to 15% over a 12-month period
Reduce depreciate more than 5% over a 12-month period
Rating Expected to
-
149
297
446
594
743
Jan
-14
Feb
-14
Mar
-14
Ap
r-1
4
May
-14
Jun
-14
Jul-
14
Au
g-1
4
Sep
-14
Oct
-14
No
v-1
4
De
c-1
4
(IN
R)
One year price chart
400
600
800
1,000
1,200
1,400
Oct
-16
No
v-1
6
De
c-1
6
Jan
-17
Feb
-17
Mar
-17
Ap
r-1
7
May
-17
Jun
-17
Jul-
17
Au
g-1
7
Sep
-17
Oct
-17
(IN
R)
Kotak mahindra Bank
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17 Edelweiss Securities Limited
Kotak Mahindra Bank
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18 Edelweiss Securities Limited
Banking and Financial Services
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19 Edelweiss Securities Limited
Kotak Mahindra Bank
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Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved
2017-10-25T22:27:55+0530ADITYA NARAIN