Emkay Global Financial's research report on Kotak Mahindra Bank
Despite the sharp fall in NIM (by 18bps QoQ), Kotak Mahindra Bank (KMB) reported a beat on earnings, with PAT at Rs34.5bn (Emkay: Rs32bn) mainly due to higher ‘other income’ including treasury gains/dividend income. We believe the sharper NIM contraction was due to moderate retail growth, lower LDR and higher CoF. Bank partly attributes the strong deposit growth (22% YoY/6% QoQ) to its ActiveMoney deposit product (contributing 7-8% of deposits, with average cost of 5-5.25%). Going forward, Bank expects NIM to clock above 5% amid the rising CoF, coupled with healthy fees, thus supporting coreprofitability. We raise earnings by 2-4% for FY24-26E, building-in higher other income, but expect KMB’s RoA/RoE to normalize to 2.1%/13% from the high of 2.4%/14% in FY23 due to margin/LLP normalization.
Outlook
We lower our P/ABV to 2.7x its Jun25E ABV for the core bank, factoring for the ensuing Top-Management change; retain HOLD, with TP at Rs2,000/sh (incl subs value at Rs500/sh).
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