'Credit reserves are not only sufficient but extremely conservative, strategic shift towards asset-side customer acquisition, engagement and cross-sell, growth will be a part of bigger strategy with superior focus on execution, it is future-ready after creating a strong and sustainable liability franchise' - sums up Kotak Mahindra Bank's medium-to-long term approach/strategy. Flat pro forma GNPLs (2.7%) and negligible contingency buffer creation in Q2FY21 seconds credit cost stance but growth orientation is still more narrative than actual Q2FY21 numbers (still modest - down 4% YoY). Deposit cost benefit, lower credit cost and improving growth strategy reinstate confidence in better earnings/return trajectory. We, too, revise our estimates sharply upwards by 45%/7% for FY21E/FY22E factoring in lower credit cost of 1.6% (than conservative stance of 2.1%). Stability with scalability deserves premium and we maintain BUY with a revised TP of Rs1,708 (earlier Rs1,663).
- Negligible contingency buffer creation reflects management's confidence - Flat pro forma (including standstill) GNPA at 2.7% is commendable and negligible Covid-19 provisions of Rs130mn (cumulative buffer of Rs12.8bn - 0.62% of advances) reinforces management's confidence in more than sufficient credit reserves and manageable asset quality trends. Credit cost below our expectations at ~70bps leads us to revise our FY21E assumptions to 2.1% (from 1.6%). SMA account, as of February 19th, where moratorium or deferment was extended is 4.7 of advances.
- Growth still on a back foot: There is a strategic shift towards asset-side customer acquisition, engagement and cross-sell and growth with superior focus on execution will be key. Albeit not reflected in Q2FY21 advances - down 4% YoY led by 7% decline in corporate lending; PL/BL/CD loans being down 10% QoQ and flat credit card portfolio. Rural buoyancy and significant participation in ECLGS (cumulative disbursements of Rs81bn yet) are supporting agri and working capital financing. It is opening up few select segments for growth namely home loans and high quality corporates, though conservative on unsecured lending. We are building in credit growth of 7%/17% over FY21/22E.
- Despite sharp drop in deposit rates, accretion continues: Build-up of robust, sustainable and granular deposit franchise was reflected in 12% deposit growth, 57% CASA, 3.87% SA cost and more than 90% retail deposits. The benefit of low deposit cost flowed in NIMs - improved 12bps QoQ to 4.52%.
- Operating cost normalises with rise in activities; offset by core fee income: Operating cost with rise in activity levels rose 10% QoQ and was flat YoY - employee cost especially was up 8% and other operating cost retracted 12% QoQ. This was offset by >30% QoQ spike in core fee income.
Shares of KOTAK MAHINDRA BANK LTD. was last trading in BSE at Rs.1415.75 as compared to the previous close of Rs. 1383.05. The total number of shares traded during the day was 284604 in over 17385 trades.
The stock hit an intraday high of Rs. 1428.4 and intraday low of 1347.75. The net turnover during the day was Rs. 395860733.