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31 October 2015
2QFY16 Results Update | Sector: Financials
Kotak Mahindra Bank
Alpesh Mehta ([email protected]); +91 22 3982 5415 Dhaval Gada ([email protected]); +91 22 3982 5505
BSE SENSEX S&P CNX CMP: INR689 TP: INR685 (-1%) Neutral 26,657 8,066
Bloomberg KMB IN
Equity Shares (m) 1825.7
M.Cap. (INR b) / (USD b) 1,257.2/19.3
52-Week Range (INR) 744 / 532 1, 6, 12 Rel. Per (%) 2/5/28 Avg Val(INR m)/Vol ‘000 1378 Free float (%) 66.2
Financials & Valuation (INR b)
Y/E Mar 2016E 2017E 2018E
NII 68.8 78.8 96.2 OP 41.2 53.9 69.0 NP 20.6 30.2 40.0 Cons. NP 35.1 47.5 60.2 NIM (%) 4.1 4.1 4.2 Cons. EPS (INR)
19.2 26.0 33.0 EPS Gr. (%) 35.4 26.7 Cons. BV. (INR) 183 209 241 Cons. RoE (%) 11.1 13.3 14.7 RoA (%) 1.1 1.4 1.5 Valuations P/E(X) (Cons.) 35.8 26.4 20.9 P/BV (X) (C )
3.8 3.3 2.9 Div. Yield (%) 0.0 0.0 0.1 * Proforma merged (KMB+EIVBL )
Strong beat on lending biz; improving performance at subsidiaries KMB’s consolidated adj. PAT (for one off integration cost) grew by ~5% QoQ to
INR10.9b led by strong loan growth (+8% QoQ), improved margins (+12bp QoQ) and strong control over costs. Integration with ING Vyasa Bank Limited (eIVBL) is well on track with the traction seen in SB deposits growth, favorable response to new product launches in eIVBL branches and no fresh negative surprise on asset quality. During 2QFY16, there was INR620m one-off fee income reversal on account of a credit event; adj. Non interest income growth was healthy at 14% QoQ. Banking business: Due to merger, previous period numbers are not comparable
for the bank. On pro-forma merged basis, 2QFY16 PAT declined 3% YoY (see exhibit 1). While, loans/deposits increased 13%/12 YoY. CASA ratio improved 560bp YoY to 36.2%. NSL increased to 1.5% v/s 1.3%. PCR remains largely stable.
Strong loan growth across segments: Personal loans and credit cards (10% QoQ, now at 180+ eIVBL branches), auto loan (9% QoQ, 300+ eIVBL branches) and agri loans (12% QoQ) were the key drivers of the growth. Management sounded more confident of ~20% YoY growth v/s earlier guidance of 15-20% for FY16. NIM improved QoQ (12bp) led by robust CASA growth (11% QoQ, 32% YoY v/s 27% YoY in 1Q – on proforma basis) and fall in cost of funds.
Other highlights: (1) ING related one off cost in the quarter were INR2.8b (INR7.4b in 1Q) a) integration cost of INR120m (INR630m) b) additional interest on savings deposits of INR300m (INR300m) c) Provision cost of INR2.4b (INR3.05b) and d) HR related cost NIL (INR3.39b). (2) Absolute GNPA for the merged bank increased 10% QoQ; GNPA ratio stood at 2.35% (+4bp QoQ) and OSRL remained stable QoQ (0.4%). Valuation and view: Merger with eIVBL places KMB in a sweet spot, with strong presence across geographies and products, and continued healthy capitalization (T1 of ~15%). The merged entity is India’s fourth-largest private sector bank, with a loan book of INR1.3t and loan market share of 1.8%+. KMB’s premium multiples are likely to sustain, considering the strong growth and operating leverage available across businesses. While we are positive on the business, at 3.3x consolidated BV and 26.4x EPS, upside is limited. Reiterate Neutral; our SOTP-based TP is INR685.
Investors are advised to refer through disclosures made at the end of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
31 October 2015 2
Kotak Mahindra Bank
Exhibit 1: Proforma Quarterly Performance
2QFY16
1QFY16
QoQ (%)
2QFY15
Growth YoY (%)
(INR m) Kotak+ING
Kotak+ING
Reported
Kotak ING Kotak+ING
Proforma Reported
Interest earned 40,057
39,914
0
23,525 13,997 37,521
7 70
Interest expenses 23,269
23,932
-3
13,136 9,366 22,502
3 77
Net interest income 16,787
15,982
5
10,389 4,631 15,020
12 62
Non-Interest income 6,157
5,924
4
4,665 2,276 6,941
-11 32
Fees and Services 4,570
4,180
9
3,210 1,959 5,169
-12 42
Treasury Income 910
1,380
-34
850 215 1,065
-15 7
Others 677
364
86
605 102 707
-4 12
Total Income 22,945
21,906
5
15,054 6,907 21,961
4 52
Operating expenses 12,497
15,937
-22
7,717 3,767 11,484
9 62
Employee cost 6,230
9,288
-33
3,545 2,233 5,778
8 76
Others 6,267
6,649
-6
4,172 1,534 5,706
10 50
Pre-provision profits 10,448
5,970
75
7,336 3,140 10,476
0 42
Provisions 1,764
3,053
-42
537 1,008 1,545
14 NA
PBT 8,684
2,917
198
6,800 2,132 8,932
-3 28
Taxes 2,989
1,019
193
2,355 698 3,053
-2 27
Profit After Tax 5,695
1,898
200
4,445 1,434 5,879
-3 28
Asset quality
GNPA 26,554
24,218
10
11,654 9,287 20,941
27 128
NNPA 11,676
10,773
8
6,115 3,316 9,431
24 91
Gross NPA % 2.4
2.3
1.9 2.4 1.7
Net NPA % 1.1
1.0
1.0 0.9 0.8
Provisions Coverage (%) 56.0
55.5
47.5 64.3 55.0
Restructured loans 4,030
4,180
-4
1,615 5,200 6,815
-41 150
% of loans 0.4
0.4
0.3 1.3 0.5
Balance Sheet (INR b)
Current deposits 203
174
17
95 62 157
30 115
Savings deposits 243
227
7
117 64 181
34 108
CASA deposits 447
401
11
212 126 338
32 111
CASA ratio (%) 36.2
34.3
31.1 29.9 30.6
Deposits 1,232
1,168
5
681 423 1,104
12 81
Borrowings 219
214
2
106 100 205
7 107
Investments 426
427
0
272 179 452
-6 56
Advances 1,117
1,036
8
609 382 991
13 83
Branches 1,269
1,260
1
641 563 1,204
65
ATM 1,934
1,942
0
1,159 640 1,799
135
Source: MOSL, Company
31 October 2015 3
Kotak Mahindra Bank
Exhibit 2: Quarterly performance v/s our estimates and reasons for deviation (INR m) Kotak Bank (standalone) 2QFY16A 2QFY16E v/s Est. Comments Net Interest Income 16,787 16,450 2 Loan growth better than expectation % Change (Q-o-Q) 5.0 2.9
Operating Profit 10,448 9,908 5 Despite one off income reversals of INR620m, strong cost control led to PPP beat
% Change (Q-o-Q) 75.0 66.0
Net Profit 5,695 5,180 10 Lower than expected provisions and better operating
performance led to the beat % Change (Q-o-Q) 200.1 172.9
Other Businesses
Kotak Prime 1,270 1,225 4 Kotak Mah. Investments 360 350 3 Kotak Mah. Capital Co 70 30 133 Kotak Securities 780 700 11 International subs 320 200 60 Kotak Mah. AMC & Trustee Co. 230 100 130 Kotak Investment Advisors 0 100 NM Kotak OM Life Insurance 480 675 -29 Con.adj and MI 230 -39 4 Consol. PAT 9,435 8,521 11 Better than expected performance all-around % Change (Q-o-Q) 82.6 64.9
Source: MOSL, Company
Healthy growth in most non-lending businesses Asset management business reported PAT of INR230m vs. loss of INR10m in
2QFY15 (INR200m in 1QFY16). PAT of international subsidiaries improved to INR320m (+146% YoY and +28% QoQ) led by strong AUM growth (+10% QoQ and +93% YoY)
Capital market related business PAT was at INR8.5b (16% beat) driven by improved profitability in the securities division. K-sec net profit was +16% QoQ at INR780m (+18% YoY) and its market share remained stable QoQ at 2.7%.
Overall AUM increased 2% QoQ to INR960b. Within which domestic AUM increased 49% YoY (-2% QoQ). Equity AUMs +128% YoY, 2% QoQ basis.
Life insurance profit decreased 8% YoY and -27% QoQ to INR4.8b.
K-Sec market share decreased 20bp to 2.7% in
1QFY16
31 October 2015 4
Kotak Mahindra Bank
Exhibit 3: KMPL: Loan growth remains muted (+6.3% YoY) led by 13% YoY de-growth in non-auto portfolio
Source: MOSL, Company
Exhibit 4: Offshore funds now accounts for 25% of overall AUMs
Source: MOSL, Company
Exhibit 5: K-Sec : QoQ profitability improves (INR b)
Source: MOSL, Company
Exhibit 6: K-Sec market share remains stable QoQ (%)
Source: MOSL, Company
Exhibit 7: Investment Banking: Earnings trend (INR m)
Source: MOSL, Company
Exhibit 8: Kotak AMC: Strong improvement in offshre AUMs
Source: MOSL, Company
89
98
97
106
112
118
122
128 13
1
131
131
133
134
139
142
147
151
158
26
27
26
28
30
34
38
42
49
46
38
47
51
49
48
50
47
43
1QFY
12
1HFY
12
9MFY
12
FY12
1QFY
13
1HFY
13
9MFY
13
FY13
1QFY
14
1HFY
14
9MFY
14
FY14
1QFY
15
1HFY
15
9MFY
15
FY15
1QFY
16
1HFY
16
Auto Loans (INR b) Other Loans (INR b)
52 51 48 45 47 43 40 36 41 39
5 5 6 6 7 9 10 12 14 14 2 1 1 1 1 1 1 1
1 1 16 16 17 18 18 19 22 26 23 25 8 10 10 10 9 9 9 7 6 6 17 17 18 20 18 19 18 18 15 15
1QFY
14
1HFY
14
9MFY
14
FY14
1QFY
15
1HFY
15
9MFY
15
FY15
1QFY
16
1HFY
16
Debt Equity PMS Offshore Funds Alternate assets Insurance
1.5 1.5
1.3 1.8
1.3 1.
6
1.5 1.6
1.5 1.
5
1.7 1.
6
2.2
2.2
2.2
2.9
2.5 2.7
0.2
0.3
0.2
0.5
0.2
0.4
0.4
0.1
0.3
0.4
0.5
0.4
0.7
0.7
0.6
1.0 0.
7
0.8
16 19 18
28 17
26 26
8
21 26
27 28 30
29 27
33
27 29
1QFY
12
2QFY
12
3QFY
12
4QFY
12
1QFY
13
2QFY
13
3QFY
13
4QFY
13
1QFY
14
2QFY
14
3QFY
14
4QFY
14
1QFY
15
2QFY
15
3QFY
15
4QFY
15
1QFY
16
2QFY
16
Tot. Inc. PAT PATM (%)
2.7
2.9 2.9 2.9
2.5 2.5 2.6
2.5
2.2
2.4 2.3 2.3
2.9
2.7 2.8
2.9
2.7 2.7
1QFY
12
2QFY
12
3QFY
12
4QFY
12
1QFY
13
2QFY
13
3QFY
13
4QFY
13
1QFY
14
2QFY
14
3QFY
14
4QFY
14
1QFY
15
2QFY
15
3QFY
15
4QFY
15
1QFY
16
2QFY
16
230
130 22
0
220
230
200
180 22
0
220
120
260
250
120
110
130
520
210 29
0
10
-40
40
50
60
40
20
40
40
-20
70
50
-40
-70
-60
300
30 70
1QFY
12
2QFY
12
3QFY
12
4QFY
12
1QFY
13
2QFY
13
3QFY
13
4QFY
13
1QFY
14
2QFY
14
3QFY
14
4QFY
14
1QFY
15
2QFY
15
3QFY
15
4QFY
15
1QFY
16
2QFY
16
Tot. Inc. PAT
36 30 29 32 31 34 34 28 31 30 36
34 47 59 71 97
132 134
6 6 7 7 7 8 9 10
72 76 73 77 82 101 96 99 100 97 102 102 120 125
157 210 217
240
1QFY
12
1HFY
12
9MFY
12
FY12
1QFY
13
1HFY
13
9MFY
13
FY13
1QFY
14
1HFY
14
9MFY
14
FY14
1QFY
15
1HFY
15
9MFY
15
FY15
1QFY
16
1HFY
16
Eq. AUM PMS AUM Offshore AUM
31 October 2015 5
Kotak Mahindra Bank
2QFY16 Conference call highlights Integration updates Optimal branch productivity benchmarking for eIVBL branches will start once
the entire integration process is over. Significant low hanging fruits available to improve productivity in the near term
Savings deposit growth on eIVBL network is 23% YoY vs. 18-19% a quarter ago and 10-12% before integration. On a QoQ basis, it grew ~7% YoY
Underlying transaction banking fee growth on a combined basis is 15-20% YoY Identified 75 overlapping branches between eIVBL and KMB. Has already run
the pilot project on 4 branches (2 each in Mumbai and Chennai) for relocation which has been successful
For any product to be rolled out on eIVBL depends upon the comfort level of product manager. eIVBL was already doing Home Loan, Personal loan and LAP thus those KMB products introduced first in those branches. Missing link of eIVBL portfolio Auto and Credit Cards have also been introduced now
Of the branch network of eIVBL a) 312 branches started selling Auto loans b) 183 branches of eIVBL started selling credit cards
All branches of eIVBL have now started selling Kotak life insurance About 6500 employees of eIVBL are being trained on various technologies Loan growth related Healthy pick up is happening on the consumer side. CV growth is showing strong
signs of revival with MHCV growing at a healthy rate. CV loans disbursement grew 80% YoY in 1H largely from MHCV segment
Loan growth for the merge entity is expected to be 15-20% (near to 20%) led by consumption related loans followed by working capital requirement of corporate
Retail and SME business is showing strong traction and wholesale banking is expected to improve in 2H
Seeing LAP as stable growing business without any compromise on credit standards. Portfolio credit quality remains stable
In the agri business focus is mainly on a) Crop (dedicated agri focused branches), b) tractor financing (soft market and it is down 20% YoY, KMB has 8% MS) and c) other agri.
Home loan and LAP mix is 50:50 – largely similar that of pre-merger KMB Others Strong improvement in domestic financial savings is helping to drive growth
across businesses eIVBL’s SME loans were 75% is non-manufacturing trading loans (20-25bp credit
cost, 1% GNPA) and largely focused on working capital loans Plans to reach 1400 branches by March 2017 INR620m derivative transaction related income reversal is where client has not
paid on 90dpd basis CASA+deposit less than INR50m is 72% of overall deposits 0.8lacs customer accounts added during the quarter Have rationalized some exposure of ING as combined exposure was large
31 October 2015 6
Kotak Mahindra Bank
Valuation and view Merger with eIVBL places KMB in a sweet spot with strong presence across
geographies, products and healthy capitalization (T1 of ~15%). The merged entity is the fourth largest private sector bank with a loan book of ~INR1.3t and market share of 1.8%+ of loans. Further, KMB’s conglomerate structure places it in a very sweet position to ride the up-cycle across financial services.
Improvement in macro-economic environment coupled with healthy capitalisation leaves KMB in a strong position to lever on growth opportunities in the economy. To leverage on its geographical expansion, the management is focusing on product penetration, with higher emphasis on Agriculture (will help in priority sector loans), small business loans (untapped opportunity; creating niche for itself) and mortgage loan. CV loans are bottoming out and likely to show traction in ensuing quarters. We upgrade estimates by 3-6% to factor in better loan CAGR (incl. eIVBL ) of ~22% over FY15/18. PAT CAGR is expected to be ~18%.
Post-merger with eIVBL , share of lending business in steady state profitability is likely to increase to ~83% vs. 81%. Improvement in capital market related business profitability is encouraging. Capital light nature of these businesses can provide upside to ROE if there is a strong improvement in business cycle.
Our SOTP is INR685 (based on pro-forma merger with eIVBL ) – 3.3xFY17E cons. BV. Backed by higher capitalization, diversified business loan book, strong risk management and presence across financial services KMB historically traded at a premium multiples to peers despite relatively lower ROE. While we are positive on the business, valuations at 3.3x/26.4x Cons BV/EPS (pro-forma merged basis) limits the upside. Maintain Neutral.
Exhibit 9: Kotak Mahindra: SOTP Valuation (FY17-based)
Value
(INR B) Value
(USD B) INR per share % To Total Rationale
Lending Business 1,105 17.0 605 88
Kotak Mahindra Bank 966 14.9 529 77 3.6x FY17E Core NW, ~1.5% RoA and ~14% Core RoE
Kotak Prime (Car and other loans) 110 1.7 60 9 2.5x FY17E Net Worth, ~15% Core RoE
Kotak Investment Company (LAS) 29 0.4 16 2 2x FY17E Net Worth
Asset Management Business 63 1.0 34 5
Domestic Mutual Fund 39 0.6 21 3 5% of FY17E Avg. AUM of INR775b
Alternative Assets 8 0.1 9 1 12% of FY17E AUM of INR68b
Offshore Funds 16 0.2 4 1 5% of FY17E AUM of INR315b
Capital Markets related Business 60 0.9 33 5
Kotak Securities 58 0.9 32 5 15x FY17E Earnings; Implied 2.1.x Core BV
Kotak Investment Banking (KMCC) 3 0.0 1 0 1x FY17E Free Networth
Kotak Life Insurance 22 0.3 12 2 16x FY17E NBAP, APE CAGR of ~15% in FY15-18
Target Value 1,250 19.2 685 100 Implied 3.3x PBV; ROE of ~13%
Current market cap. 1,257 19.3 689
Upside (%) -0.6 -0.6
Source: MOSL, Company
Excess capitalisation is leading to (tier-I ratio of
~15%) relatively lower RoE of ~13% over FY16/18
Our SOTP-based target price is INR685 (3.3x FY17
consol. BV)
31 October 2015 7
Kotak Mahindra Bank
Exhibit 10: We increase our earnings estimates by 3-6% led by improved loan growth in standalone entity INR b Old Est. Revised Est. Change (%) FY16 FY17 FY18 FY16 FY17 FY18 FY16 FY17 FY18 Net Interest Income 66.6 78.4 96.0 68.8 78.8 96.2 3.3 0.5 0.2 Other Income 26.6 33.0 40.7 27.5 34.8 43.0 3.5 5.4 5.5 Total Income 93.2 111.4 136.8 96.4 113.6 139.2 3.4 2.0 1.8 Operating Expenses 56.4 60.6 71.5 55.2 59.7 70.2 -2.1 -1.5 -1.9 Operating Profits 36.9 50.8 65.2 41.2 53.9 69.0 11.7 6.1 5.8 Provisions 8.3 7.5 9.4 9.8 7.8 8.0 18.1 3.7 -15.0 PBT 28.6 43.3 55.8 31.4 46.2 61.0 9.9 6.6 9.3 Tax 9.9 14.5 18.7 10.8 15.9 21.1 9.9 9.7 12.6 Standalone PAT 18.7 28.8 37.1 20.6 30.2 40.0 9.9 5.0 7.7 Consolidated PAT 33.2 46.2 58.4 35.1 47.5 60.2 5.7 2.9 3.2 Loans 1,241 1,514 1,877 1,284 1,566 1,942 3.4 3.4 3.4 Deposits 1,439 1,741 2,141 1,439 1,726 2,106 0.0 -0.8 -1.6 Margins (%) 3.8 3.8 3.9 4.1 4.1 4.2 SA RoA (%) 1.0 1.3 1.4 1.1 1.4 1.5 Core RoE (%) 8.3 11.6 13.2 9.0 12.0 14.0
Source: MOSL, Company Exhibit 11: Lending and AMC business driving estimates higher INR b Old Est. Revised Est. Change (%) FY16 FY17 FY18 FY16 FY17 FY18 FY16 FY17 FY18 Kotak Mahindra Bank (Standalone) 18.7 28.8 37.1 20.6 30.2 40.0 9.9 5.0 7.7 Kotak Mahindra Prime 5.3 6.8 8.5 5.1 5.8 6.7
Kotak Mahindra Investments 1.5 1.8 2.2 1.5 2.0 2.6 Lending Business 25.4 37.4 47.8 27.2 38.1 49.2 6.7 1.9 2.9 International subsidiaries 1.0 1.2 1.4 1.5 1.7 1.9 Kotak Mahindra AMC & Trustee Co 0.7 0.4 0.5 0.9 1.2 1.4 Kotak Investment Advisors 0.3 0.4 0.4 0.0 0.1 0.1 Asset Management Business 2.0 2.0 2.3 2.4 2.9 3.4 23.9 50.2 49.8 Kotak Securities 3.0 3.8 4.9 3.1 3.9 4.8 Kotak Mahindra Capital Company 0.2 0.2 0.2 0.3 0.3 0.3 Capital Market Business 3.2 4.0 5.1 3.4 4.1 5.1 6.2 4.2 -0.5 Consol. PAT excluding Kotak Life 30.6 43.3 55.2 33.0 45.2 57.6 7.8 4.3 4.4 Kotak OM Life Insurance 2.7 3.0 3.3 2.3 2.5 2.8 Consolidation Adjust. -0.1 -0.1 -0.1 -0.2 -0.1 -0.1 Consol. PAT Including Kotak Life 33.2 46.2 58.4 35.1 47.6 60.2 5.6 2.9 3.2
Source: MOSL, Company
31 October 2015 8
Kotak Mahindra Bank
Exhibit 12: KMB Group: Earnings Estimates (INR m) FY11 FY12 FY13 FY14 FY15E FY16E FY17E FY18E
Kotak Mahindra Bank (Standalone) * 11,367 15,414 19,737 21,603 24,250 20,583 30,234 39,967 Kotak Mahindra Prime 3,179 3,849 4,307 4,907 5,077 5,114 5,817 6,650 Kotak Mahindra Investments 240 153 336 420 1,060 1,460 2,025 2,586
Lending Business 14,786 19,415 24,380 26,930 30,387 27,158 38,076 49,203 International subsidiaries 509 -110 60 70 520 1,500 1,700 1,900 Kotak Mahindra AMC & Trustee Co 173 154 35 410 -290 945 1,185 1,422 Kotak Investment Advisors 327 361 307 180 250 0 50 100
Asset Management Business 1,009 405 401 660 480 2,445 2,935 3,422 Kotak Securities 1,819 1,258 1,145 1,603 2,900 3,100 3,852 4,622 Kotak Mahindra Capital Company 519 59 167 140 130 266 288 332 Capital Market Business 2,338 1,318 1,312 1,743 3,030 3,366 4,140 4,954 Consol. PAT excluding Kotak Life 18,133 21,137 26,093 29,333 33,897 32,969 45,152 57,579 YoY Growth (%) 22 17 23 12 16 -3 37 28 Kotak OM Life Insurance 1,014 2,030 1,900 2,390 2,280 2,280 2,508 2,759 Consolidation Adjust. -294 -282 21 -495 394 -150 -125 -125 Consol. PAT Including Kotak Life 18,853 22,885 28,014 31,228 36,571 35,099 47,535 60,213 YoY Growth (%) 23 21 22 11 17 -4 35 27
*Including ING Vysya Bank Source: MOSL, Company
Exhibit 13: Kotak Group Earnings Snapshot (% of total) FY11 FY12 FY13 FY14 FY15E FY16E FY17E FY18E Kotak Mahindra Bank (Standalone) * 60 67 70 69 66 59 64 66
Kotak Mahindra Prime 17 17 15 16 14 15 12 11 Kotak Mahindra Investments 1 1 1 1 3 4 4 4 Lending Business 78 85 87 86 83 77 80 82 International subsidiaries 3 0 0 0 1 4 4 3 Kotak Mahindra AMC & Trustee Co 1 1 0 1 -1 3 2 2 Kotak Investment Advisors 2 2 1 1 1 0 0 0 Asset Management Business 5 2 1 2 1 7 6 6 Kotak Securities 10 5 4 5 8 9 8 8 Kotak Mahindra Capital Company 3 0 1 0 0 1 1 1 Capital Market Business 12 6 5 6 8 10 9 8 Consol. PAT excluding Kotak Life 96 92 93 94 93 94 95 96 Kotak OM Life Insurance 5 9 7 8 6 6 5 5 Consol. PAT Including Kotak Life 100 100 100 100 100 100 100 100
*Including ING Vysya Bank Source: MOSL, Company
31 October 2015 9
Kotak Mahindra Bank
Exhibit 14: Financials: Valuation metrics
66 Rating CMP Mcap EPS (INR) P/E (x) BV (INR) P/BV (x) RoA (%) RoE (%)
(INR) (USDb) FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17
ICICIBC* Buy 277 24.3 21.8 25.4 9.8 8.0 132 150 1.62 1.36 1.58 1.58 15.0 15.3
HDFCB Buy 1,097 41.7 49.1 59.3 22.3 18.5 285 331 3.85 3.32 1.88 1.86 18.4 19.3
AXSB Buy 475 17.1 35.6 41.8 13.4 11.3 217 252 2.19 1.89 1.69 1.70 17.5 17.8
KMB* Neutral 689 19.0 19.2 26.0 35.8 26.4 183 209 3.76 3.30 1.11 1.40 13.9 14.5
YES Buy 759 4.8 60.0 75.8 12.7 10.0 327 388 2.32 1.96 1.67 1.73 19.8 21.2
IIB Buy 911 8.1 41.3 51.3 22.1 17.8 295 340 3.08 2.68 2.04 2.08 17.6 16.1
DCBB Sell 87 0.4 5.4 5.8 16.1 14.9 60 66 1.44 1.31 0.84 0.73 9.3 9.2
FB Neutral 54 1.4 4.4 5.6 12.3 9.8 49 53 1.12 1.03 0.86 0.95 9.5 11.0
JKBK Neutral 83 0.6 14.1 17.3 5.9 4.8 136 150 0.61 0.56 0.85 0.92 10.7 12.1
SIB Buy 21 0.4 2.5 3.1 8.0 6.7 29 31 0.72 0.66 0.55 0.58 9.4 10.3
Private Aggregate 117.9 17.9 15.0 2.70 2.37
SBIN (cons)* Buy 237 27.2 25.6 31.7 8.8 7.1 229 255 0.98 0.88 0.70 0.77 11.7 13.1
PNB Buy 128 3.6 19.6 26.8 6.5 4.8 220 244 0.58 0.53 0.57 0.70 9.3 11.6
BOI Neutral 132 1.3 19.4 27.1 6.8 4.9 410 432 0.32 0.30 0.20 0.25 4.8 6.4
BOB Buy 160 1.1 20.3 25.1 7.9 6.4 182 201 0.88 0.80 0.61 0.68 11.7 13.1
CBK Buy 277 2.2 43.8 59.7 6.3 4.6 573 619 0.48 0.45 0.39 0.48 8.1 10.0
UNBK Buy 157 1.5 35.7 46.6 4.4 3.4 317 356 0.50 0.44 0.56 0.65 11.8 13.9
OBC Buy 135 0.6 46.3 63.8 2.9 2.1 474 523 0.28 0.26 0.57 0.69 10.1 12.8
INBK Buy 125 0.9 21.1 30.6 5.9 4.1 278 301 0.45 0.42 0.50 0.65 7.8 10.6
CRPBK Neutral 44 0.1 16.5 21.9 2.6 2.0 141 158 0.31 0.28 0.54 0.64 12.3 14.7
ANDB Buy 65 0.6 17.8 22.8 3.7 2.9 180 196 0.36 0.33 0.55 0.62 10.3 12.2
IDBI Neutral 86 2.1 14.4 19.7 5.9 4.4 157 173 0.55 0.50 0.58 0.69 9.5 11.9
DBNK Neutral 42 0.4 8.8 12.5 4.8 3.3 126 136 0.33 0.31 0.36 0.44 7.2 9.6
Public Aggregate 41.6 7.5 5.7 0.68 0.62
HDFC* Under Review 1,257 30.0 35 42 23.1 17.7 165 188 4.94 3.90 2.46 2.55 23.6 22.7 LICHF Buy 480 3.7 34 42 14.2 11.3 182 216 2.64 2.22 1.48 1.55 20.1 21.3 DEWH Buy 225 1.0 26 33 8.6 6.8 179 204 1.26 1.10 1.27 1.29 15.6 17.2
IHFL Buy 722 4.7 56 72 13.0 10.1 275 304 2.63 2.37 3.91 4.07 25.9 24.8
GRHF Buy 255 1.4 7 9 37.5 29.8 24 28 10.78 8.95 2.18 2.05 28.9 28.6
REPCO Buy 705 0.7 24 34 28.8 20.7 152 182 4.64 3.87 2.20 2.32 17.3 20.4
IDFC Buy 59 1.4 10 12 6.0 5.1 107 116 0.28 0.25 1.75 1.83 8.8 9.8
RECL Buy 249 3.7 63 76 3.9 3.3 302 360 0.83 0.69 3.22 3.23 22.9 22.9
POWF Buy 240 4.8 54 60 4.4 4.0 285 329 0.84 0.73 3.07 3.03 20.4 19.7
SHTF Buy 943 3.2 62 73 15.2 12.9 457 515 2.06 1.83 2.08 2.29 14.0 15.0
MMFS Buy 228 1.9 12 15 18.9 14.9 109 120 2.09 1.90 1.93 2.22 11.5 13.3
BAF Buy 5,215 4.2 224 276 23.3 18.9 1,351 1,582 3.86 3.30 3.12 2.92 19.9 18.8
MUTH Buy 181 5.4 20 24 11.5 9.6 141 156 1.62 1.46 2.75 2.83 14.7 16.0
NBFC Aggregate 60.7 15.3 13.0 2.64 2.32
Source: MOSL, Company
31 October 2015 10
Kotak Mahindra Bank
Financials and valuations (KMB+EIVBL - Proforma-merged)
Income Statement (INR Million) Y/E March 2012 2013 2014 2015 2016E 2017E 2018E Interest Income 100,370 129,041 139,722 155,462 165,242 187,889 221,110 Interest Expense 63,162 81,598 84,991 94,007 96,408 109,104 124,877 Net Interest Income 37,208 47,443 54,731 61,455 68,834 78,784 96,233 Change (%) 19.9 27.5 15.4 12.3 12.0 14.5 22.1 Non-Interest Income 16,471 18,875 22,668 27,853 27,536 34,842 42,990 Net Income 53,679 66,318 77,399 89,307 96,370 113,626 139,223 Change (%) 18.2 23.5 16.7 15.4 7.9 17.9 22.5 Operating Expenses 29,450 34,825 40,353 48,236 55,176 59,713 70,186 Pre Provision Profits 24,229 31,493 37,046 41,071 41,194 53,913 69,037 Change (%) 23.6 30.0 17.6 10.9 0.3 30.9 28.1 Provisions (excl tax) 1,688 2,758 4,545 4,399 9,769 7,754 8,019 PBT 22,541 28,735 32,501 36,673 31,425 46,159 61,018 Tax 7,127 8,998 10,898 12,423 10,842 15,925 21,051 Tax Rate (%) 31.6 31.3 33.5 33.9 34.5 34.5 34.5 PAT 15,414 19,737 21,603 24,250 20,583 30,234 39,967 Change (%) 35.6 28.0 9.5 12.3 -15.1 46.9 32.2 Consolidated PAT (incl EIVBL ) 22,885 28,014 31,228 36,571 35,099 47,535 60,213 Change (%) 21.4 22.4 11.5 17.1 -4.0 35.4 26.7
Balance Sheet (INR Million) Y/E March 2012 2013 2014 2015 2016E 2017E 2018E Net Worth 123,309 144,646 197,401 219,994 236,582 265,760 304,330 Deposits 737,319 923,628 1,002,891 1,240,148 1,438,571 1,726,285 2,106,068 Change (%) 24.0 25.3 8.6 23.7 16.0 20.0 22.0 of which CASA Dep 244,498 283,534 325,865 412,995 526,899 658,623 823,279 Change (%) 27.0 16.0 14.9 26.7 27.6 25.0 25.0 Borrowings 222,920 269,219 225,641 205,411 225,953 266,624 306,618 Other Liabilities & Prov. 46,828 51,542 57,905 67,119 79,200 93,456 112,147 Total Liabilities 1,126,673 1,385,301 1,479,986 1,732,672 1,980,306 2,352,125 2,829,163 Current Assets 58,651 65,226 118,060 96,930 108,691 135,230 166,453 Investments 342,823 471,517 422,053 513,313 461,982 508,180 558,998 Change (%) 21.7 37.5 -10.5 21.6 -10.0 10.0 10.0 Loans 678,159 802,410 888,565 1,069,718 1,283,661 1,566,066 1,941,922 Change (%) 28.1 18.3 10.7 20.4 20.0 22.0 24.0 Fixed Assets 9,508 9,640 16,315 16,204 16,452 16,700 16,948 Other Assets 37,532 36,508 34,994 36,507 109,520 125,948 144,840 Total Assets 1,126,673 1,385,301 1,479,986 1,732,672 1,980,306 2,352,125 2,829,163
Asset Quality (%) GNPA (INR m) 11,771 13,283 17,037 22,884 31,338 31,639 34,644 NNPA (INR m) 2,899 3,205 6,756 10,722 13,319 12,656 13,858 GNPA Ratio 1.71 1.63 1.90 2.12 2.41 2.00 1.77 NNPA Ratio 0.43 0.40 0.76 1.00 1.04 0.81 0.71 PCR (Excl Tech. write off) 75.4 75.9 60.3 53.1 57.5 60.0 60.0 E: MOSL Estimates
31 October 2015 11
Kotak Mahindra Bank
Financials and valuations (KMB+EIVBL - Proforma-merged)
Ratios Y/E March 2012 2013 2014 2015 2016E 2017E 2018E Spreads Analysis (%)
Avg. Yield-Earning Assets 10.8 11.0 10.5 10.4 9.8 9.7 9.5 Avg. Yield on loans 12.8 13.1 12.4 12.1 10.8 10.5 10.3 Avg. Yield on Investments 7.3 7.8 7.7 7.8 7.0 6.8 6.5 Avg. Cost-Int. Bear. Liab. 7.4 7.6 7.0 7.0 6.2 6.0 5.7 Avg. Cost of Deposits 7.0 7.1 6.8 6.8 5.7 5.5 5.3 Interest Spread 3.4 3.5 3.5 3.4 3.6 3.8 3.9 Net Interest Margin 4.0 4.1 4.1 4.1 4.1 4.1 4.2
Profitability Ratios (%) RoE 14.0 14.8 12.7 11.7 9.0 12.0 14.0 RoA 1.5 1.6 1.5 1.5 1.1 1.4 1.5 Consolidated ROE 14.8 15.0 13.4 13.0 11.1 13.3 14.7 Other Ratios (%)
Int. Expense/Int.Income 62.9 63.2 60.8 60.5 58.3 58.1 56.5 Non Int. Inc./Net Income 30.7 28.5 29.3 31.2 28.6 30.7 30.9 Cost/Income 54.9 52.5 52.1 54.0 57.3 52.6 50.4 Empl. Cost/Op. Exps. 51.7 52.4 51.4 49.7 52.1 50.8 51.8 Loans/Deposit Ratio 92.0 86.9 88.6 86.3 89.2 90.7 92.2 CASA Ratio 33.2 30.7 32.5 33.3 36.6 38.2 39.1 Investment/Deposit Ratio 46.5 51.1 42.1 41.4 32.1 29.4 26.5
Valuation Standalone Book Value (INR) 56.1 65.8 82.2 120.1 129.6 145.6 166.7 Change (%) 7.9 12.3 14.5 Consolidated BV (INR) 89.6 104.6 126.3 164.5 183.2 208.7 241.0 Change (%)
11.4 13.9 15.5
Price-BV (x) 4.2 3.8 3.3 2.9 Consolidated EPS (INR) 12.4 14.7 16.0 20.1 19.2 26.0 33.0 Change (%)
-4.2 35.4 26.7
Price-Earnings (x) 34.3 35.8 26.4 20.9 Dividend Per Share (INR) 0.2 0.2 0.2 0.4 0.3 0.5 0.7 Dividend Yield (%) 0.0 0.0 0.0 0.1 E: MOSL Estimates
31 October 2015 12
Kotak Mahindra Bank
Corporate profile: Kotak Mahindra Bank
Exhibit 16: Shareholding pattern (%) Jun-15 Mar-15 Jun-14
Promoter 33.9 40.0 40.3
DII 3.7 1.9 1.8
FII 35.4 37.0 35.3
Others 27.1 21.1 22.6
Note: FII Includes depository receipts
Exhibit 17: Top holders Holder Name % Holding
ING Mauritius Investments I 6.4
Europacific Growth Fund 4.8 Canada Pension Plan Investment Board - Managed
3.9
Sumitomo Mitsui Banking Corporation 3.6 National Westminster Bank Plc As Depositary Of First
2.0
Exhibit 18: Top management Name Designation
Uday Kotak Executive Vice Chairman & MD
C Jayaram Joint Managing Director
Dipak Gupta Joint Managing Director
Jaimin Bhatt CFO
Shanti Ekambaram CPresident Corporate and IB
Exhibit 19: Directors Name Name
Shankar Acharya* Prakash Apte*
C Jayaram N P Sarda
Dipak Gupta Uday Kotak
Asim Ghosh* S Mahendra Dev*
Amit Desai* Farida Khambata
*Independent
Exhibit 20: Auditors
Name Type
S B Billimoria & Co Statutory
Exhibit 21: MOSL forecast v/s consensus EPS
(INR) MOSL
forecast Consensus
forecast Variation
(%)
FY16 19.2 21.4 -10.4
FY17 26.0 31.5 -17.5
FY18 33.0 38.2 -13.5
Company description Kotak Mahindra Bank (KMB) is part of the larger Kotak Mahindra Group led by Mr. Uday Kotak, Founder and Managing Director of the Bank. The group has a strong presence across financial services value chain. Notably, KMB is the only bank in India’s corporate history to be converted into a bank from a non-banking finance company. The bank has pan-India presence with 1269 branches and 1,934 ATMs as on September 30, 2015. Recently, KMB merged with EIVBL in an all-stock deal.
Exhibit 15: Sensex rebased
31 October 2015 13
Kotak Mahindra Bank
N O T E S
31 October 2015 14
Kotak Mahindra Bank
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