LKP Research's research report on Kotak Mahindra Bank
Kotak Mahindra Bank (KMB) reported strong 3QFY23 results with the key pointers being: a) Strong NII (up 30.4% YoY and 10.9% QoQ) and seasonally higher provisions, b) GNPA/ NNPA ratio moderation to 1.9%/0.43%, c) restructured pool inched down to ₹7.6bn (25bps of advances) v/s ₹9.9bn in the previous quarter, d) credit off-take best among large private banks with growth of 23% YoY and 5.7% sequentially, e) covid provision held at ₹4bn as of 3QFY23, provision write-back worth ₹380mn, f) the total contingent provisioning (covid + Standard + Specific) stood 0.19% of net advances, h) Total PCR (including covid, general and specific provision) stood ~87 of NPL amount, g) Headline NIM inched up 30bps QoQ to 5.47%. Moreover, stable Opex (C/I at 50.3% v/s 49.4% in 2QFY23) led to superior ROA of 2.5%. We believe the bank to further soar its profitability driven by higher growth, healthy margins, robust non-interest income and lower provisioning. We recommend BUY factoring a best in class ROA of more than 2%.
Outlook
We expect KMB’s loan book to grow at CAGR of ~22% over FY22-24E. At CMP of ₹1763, the stock is available at 3.7(x) standalone FY24E Adj. BVPS of ₹479. Valuing the standalone entity with 4.1xFY24E BVPS and subsidiaries valuation at ₹84; we arrive at a target price of ₹2,046. We recommend BUY with a potential upside of 16%.
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