PL Stock Report - Kotak Mahindra Bank (KMB IN) - Q1FY24 Result Update - Mixed quarter; unsecured momentum sustaining - BUY

Kotak Mahindra Bank (KMB IN) - Gaurav Jani - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs1,970 | TP: Rs2,250

Q1FY24 Result Update - Mixed quarter; unsecured momentum sustaining

Quick Pointers:

♦ NIM beat although higher PPoP was led by higher treasury and dividend.

♦ Higher yielding unsecured share at 10.4% is consistently improving.

KMB saw a mixed quarter. NIM beat of 16bps resulted in better NII that was offset by lower fees and higher opex. PPoP beat of 13.3% was mainly led by higher treasury and dividend income. Business growth QoQ was also more wholesale driven as corporate credit grew by 7.0%, while wholesale deposit growth was 18%. RTD share was 80% (vs 88% a year ago). A key positive has been continuing traction in unsecured segments with PL/CC/MFI share touching 10.4% (7.8% YoY). Healthy credit environment could further propel unsecured growth cushioning NIM, although opex would continue to remain elevated. Hence for FY24/25E we raise NIM by 17/19bps and increase opex by ~5.4% resulting in PAT upgrade of 5.0%. Valuation is at 3.0x; maintaining multiple at 3.5x on Mar’25 core ABV we slightly raise SOTP based TP to Rs2,250 from Rs2,220. Retain ‘BUY’.

♦ Core PAT miss due to more provisions; treasury/dividend protected PAT: NII was a tad higher at Rs62.3bn (PLe Rs60bn), due to better margins as loan growth was largely in-line. NIM was a beat yet again at 5.5% (PLe 5.34%), led by higher yield on loans and investments. Credit growth was ~17.3% YoY (PLe 17.6%). Deposit accretion was stronger at 22.0% YoY (PLe 17.0%). Other income was ahead at Rs26.8bn (PLe Rs21.9bn) due to higher treasury and dividend. Opex was a miss at Rs39.7bn (PLe Rs37.9bn) due to both, staff cost and other opex. PPoP came in at Rs49.5bn (PLe Rs43.7) while core PPoP was higher to PLe by (1.2%). GNPA/NNPA at 1.77%/0.4% was 4/5bps above PLe due to higher slippages leading to more provisions at Rs3.64bn (PLe Rs2.1bn). PAT was a beat at Rs34.5bn, while core PAT was 2.2% below PLe.

♦ Sequential credit growth led by corporate, PL/CC: Loan growth was 2.7% QoQ led by corporate (+7.1%), CC (12.6%), PL (5.8%) and home (2.6%). Corporate growth emanated from large companies, MNC and NBFC. Large portion of PL/CC sourcing is done through digital channels. Unsecured share has risen YoY from 7.8% to 10.4% (guidance mid-teens). Bank is increasingly relying on bulk deposits, as its rates have reduced by 30-50bps since Mar’23. Share of RTD has reduced to 80% from 88% a year ago. KMB has started a new TD sweep product called ‘AcitvMoney’ which grew by a healthy 24% QoQ. While this could cannibalize CASA, bank is confident of higher deposit flow in long term as this product would meet customer requirements.

♦ Raise opex by ~5.4% for FY24/25, factoring a ~25% CAGR: Employee cost increased sharply by 13.2% QoQ as benefits from drop in annuity interest rates resulting in lower retiral costs was not available. While attrition rate for FY23 at 46% is a bit concerning it was more at junior level; attrition split is–senior level: <10%, mid-level: 20% and juniors: 50% (mainly in sales and call centers). Other opex was higher due to increased IT spends and promotion expenses related to ‘ActivMoney’. Management expects opex to remain elevated in near term as there will be significant investment in technology.

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