26 October 2016
2QFY17 Results Update | Sector: Financials
Kotak Mahindra Bank
BSE SENSEX
28,091
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
S&P CNX
8,691
KMB IN
1835
1440 / 21.4
825.6 / 586.5
1/3/16
1332.5
66.4
CMP: INR785
TP: INR933 (+19%)
Buy
Healthy lending business performance, stable asset quality
Standalone results:
PAT grew 43% YoY to INR8.1b (in-line). Strong core
operating performance (+27% YoY), healthy NII growth (19% YoY) on the back
of 10bp QoQ margin improvement (4.5%), controlled opex growth (+11% YoY),
and stable asset quality (NSL at 1.3%) were the key highlights. Fee income
remained moderate (+13% YoY).
Loans grew 13% YoY (+4% QoQ), led by robust growth in CV (+9% QoQ, 42%
YoY) and small business and personal loan (8% QoQ and 19% YoY) segments.
Management expects 20% growth for FY17.
Other highlights:
a) SMA2 at 33bp and b) SA growth of 36% YoY.
Other businesses:
a) Profitability at its capital market businesses improved to
INR1b v/s INR830m a quarter ago, led by better profitability of K-Sec (INR960m
v/s INR600m in 1QFY17); b) K-Sec market share declined 10bp QoQ to 2.3%; c)
overall AUM increased 9% QoQ (+26% YoY) – average domestic AUM increased
15% QoQ and 40% YoY; equity AUM up 16% QoQ (44% YoY).
Valuation and view:
Merger with eIVBL places KMB in a sweet spot, with strong
presence across geographies/products and continued healthy capitalization (T1 of
~16%). The merged entity is India’s fourth largest private sector bank, with loan
book of INR1.3t and loan market share of 1.7%+. KMB’s premium multiples are
likely to sustain, considering strong growth and operating leverage available across
businesses, and a clean loan portfolio. Comfort on asset quality remains the
highest, with no SDR/5:25, negligible SMA2 and OSRL (12bp). We move to average
of FY18 and FY19 SOTP v/s FY18 earlier. Our target multiples for each of the
businesses remain unchanged. At our SOTP of INR933, KMB will trade at 3.6x
September 2018 consolidated BV with cons. RoE of 15-16%.
Buy.
Financials & Valuation (INR b)
Y/E MARCH
2016 2017E 2018E
NII
69.0
81.1
95.5
OP
40.4
57.5
72.2
NP
20.9
33.4
42.5
Cons. NP
34.6
48.9
60.7
NIM (%)
4.1
4.4
4.5
Cons. EPS (INR) 18.9
26.7
33.1
EPS Gr. (%)
41.4
24.0
Cons. BV. (INR) 182
208
239
Cons. RoE (%)
10.9
13.7
14.8
RoA (%)
1.1
1.6
1.8
Payout (%)
5.1
5.8
5.8
Valuations
P/E(X) (Cons.)
41.6
29.4
23.7
P/BV(X) (Cons.) 4.3
3.8
3.3
* Proforma merged (KMB+EIVBL )
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
Sohail Halai
(Sohail.Halai@MotilalOswal.com); +91 22 3982 5505
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Kotak Mahindra Bank
Exhibit 1: Quarterly performance v/s our estimates and reasons for deviation (INR m)
Kotak Bank (standalone)
Net Interest Income
% Change (Y-o-Y)
Operating Profit
% Change (Y-o-Y)
Net Profit
% Change (Y-o-Y)
Other Businesses
Kotak Prime
Kotak Mah. Investments
Kotak Mah. Capital Co
Kotak Securities
International subs
Kotak Mah. AMC & Trustee Co.
Kotak Investment Advisors
Kotak OM Life Insurance
Con.adj and MI
Consol. PAT
% Change (Y-o-Y)
2QFY17A
19,954
24.9
14,401
141.2
8,133
328.5
1,300
530
50
960
310
70
10
630
30
12,023
132.7
2QFY17E
19,532
22.2
13,632
128.4
7,799
311.0
1,300
450
200
650
180
225
110
720
-10
11,624
124.9
v/s Est.
2
6
4
Comments
NIMs better than expected; loan growth lower than
expected
Better than expected opex performance
Asset quality and opex driving PAT beat
Inline
Growth better than expected
Sharp improvement in profitability QoQ
0
18
-75
48
72
-69
-13
3
Beat in lending business and mixed performance at
capital market businesses led to overall PAT beat
Source: MOSL, Company
NIMs expanded 17bp YoY to
4.47%
Lending Business: Strong core performance and stable asset quality
performance
On the standalone basis NIM improved 17bp YoY (10bp QoQ) to 4.47%. Strong
margin performance compensated for moderate loan growth of 13% YoY
leading to largely inline NII performance (+19% YoY).
Fee income remained modest at 13% YoY, however tight leash over opex (11%
YoY; synergistic benefits) led to strong core operating profit growth of 27% YoY.
While the challenges continue in the economy KMB reported strong asset
quality performance with net stress loans flat QoQ at 130bp (one of the lowest
in the system). SMA2 accounts also stood at a low of 33bp demonstrating the
robust risk management practices of the bank.
Consolidated loan growth was healthy at 14% YoY driven by strong growth of
42% YoY (9% QoQ) in commercial vehicle loans and corporate banking (18%
YoY). Management expects loan growth to increase to ~20%.
SA deposits grew 8% QoQ and 36% YoY. SA deposits as a proportion of overall
deposits stood at 23.4% (21.8% a quarter ago and 19.8% a year ago). Overall
CASA ratio further improved to 39% as compared to 36.2% in 2QFY16.
Healthy performance in non-lending business
Capital market related business PAT was at INR1b (19% beat) driven by strong
profitability in the securities division. K-sec net profit increased 60% QoQ to
INR960m (+23% YoY), however its market share declined QoQ to 2.3%.
Asset management business reported PAT of INR390m vs. INR550m in 2QFY16.
Overall AUM increased 9% QoQ to INR1.2t. Within which domestic AUM grew
14% QoQ and 40% YoY. Domestic debt AUMs increased at a similar pace.
Life insurance profit increased 17% YoY and 49% QoQ to INR 760m.
26 October 2016
2

Kotak Mahindra Bank
Exhibit 2: KMPL: Overall loans grew by 13% YoY (+4% QoQ),
similar to 1QFY17
Auto Loans (INR b)
Other Loans (INR b)
Exhibit 3: Debt funds now account for 43% of overall AUMs,
(v/s 41% in 1QFY17)
Debt
Offshore Funds
17
8
16
2
5
52
17
10
16
1
5
51
18
10
17
1
6
48
20
10
18
1
6
45
18
9
18
1
7
47
Equity
Alternate assets
19
9
19
1
9
43
18
9
22
1
10
40
18
7
26
1
12
36
15
6
23
1
14
41
15
6
25
1
14
39
PMS
Insurance
15
6
22
1
14
42
14
11
21
1
14
39
14
10
19
1
15
41
14
9
17
1
16
43
Source: MOSL, Company
Source: MOSL, Company
Exhibit 4: K-Sec: PAT grew 60% sequentially (INR b)
Tot. Inc.
26 26
21
PAT
30 29
27
PATM (%)
33
29
27
24 23
25
33
Exhibit 5: K-Sec market share decreased 10bp QoQ (%)
2.9
2.5
2.6
2.7
2.5
2.2
2.4
2.3 2.3
2.9
2.7 2.7 2.7
2.3
2.4
2.3
26 27 28
2.8
Source: MOSL, Company
Source: MOSL, Company
Exhibit 6: Investment Banking: Earnings trend (INR m)
Tot. Inc.
PAT
Exhibit 7: Kotak AMC: Equity AUMs trending higher (INR b)
Eq. AUM
PMS AUM
Offshore AUM
240
210 217 211 215 211 205
157 132 134 134
193
120 125
101 96 99 100 97 102 102
97
166
143
59 71
36 34 47
34 34 28 31 30
8 9 10 10 10 11 12
Source: MOSL, Company
Source: MOSL, Company
26 October 2016
3

Kotak Mahindra Bank
2QFY17 Conference call highlights
Balance sheet related
Post-merger integration of systems, processes and people took time to settle
down which led to moderate growth in business banking segment. However, it is
well primed for growth now.
Bank follows a prudent risk adjusted approach to loan growth and hence, mgt.
maintains 20% loan growth for the full year guidance. 1H loan growth was
slower at 13% due to implementation reasons. Will pick up in 2H.
Significantly higher than industry growth expected in Savings deposits.
P/L related
NIM–Guidance of 4.2-4.3% going forward in spite of expansion this quarter
(10bp QoQ to 4.47%).
Other Opex includes the purchase and sale of PSL certificates.
Management confident of keeping C/I below 50% during the year.
Asset quality
Gradual improvement in credit cost as integration is complete.
No ARC sale, CDR, 5:25, conversion to Balance sheet, SDR.
Credit cost guidance – 50bps on end of year loan book.
Other highlights
Not present in the MFI segment currently - recent intent to acquire MF portfolio
in order to learn the business and then scale. The portfolio under consideration
is excellent in terms of asset quality
Market share is continuously improving in CV/CE segment. Moreover stress in
this portfolio has reduced, so team is well motivated to drive this business
further.
Significant presence of e-VYSB in the South especially in the states of AP,
Karnataka and Telangana. Management wants to leverage on this and expand to
other geographies.
CRE strategy focused on partnering with the best quality developers and
builders (considering that there is some stress in this segment)
Home loan and LAP seen growth driven by strong volume growth in the last 2
months (again a consequence of post integration). Deleveraging by customers
with several loan foreclosures seen in the quarter
Management comfortable with the current capital ratio (tier 1 -16.5%)
Digital Quotient
Mobile usage 3x greater than net banking; 118% YoY growth in mobile
transaction in volumes.
E-commerce now integrated in digital platforms with a shop-through bank-app
feature on Flipkart.
95% YoY traction in digital transactions, 79% YoY growth in payment gateway
transactions, more than 40% payment gateway transactions through mobile.
Lower hurdle of physical infrastructure going forward, considering the progress
of digital initiatives. Also digital initiatives are being implemented and pushed
26 October 2016
4

Kotak Mahindra Bank
across all channels – ATMs, branches, and call center’s. So the format is moving
from service to assisted self-service. However, branch presence is very essential
to acquire customers.
Valuation and view
Buy with SoTP of INR933
(3.6x September 2018E
Consolidated BV)
Merger with eIVBL places KMB in a sweet spot with strong presence across
geographies, products and healthy capitalization (tier 1 of ~16%). The merged
entity is the fourth largest private sector bank with a loan book of ~INR1.3t.
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
capitalization 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 has started showing traction and is
expected to show a healthy trend in ensuing quarters.
Operating leverage is expected to kick in the expanded underutilized capacity.
Higher refinancing opportunities, increased product offering on the combined
network and product penetration to eIVBL customers, will keep loan growth
healthy. On a lower base we are factoring loan CAGR of ~20% over FY16-19E.
We expect PPoP (adjusted) CAGR of ~30% over FY16-19E, largely driven by
stable margins and operating leverage. Large part of current year credit cost was
driven by eIVBL portfolio, and the credit cost has normalized and is expected to
remain under check. With just 33bp of SMA2 accounts, No 5:25 and SDR on
balance sheet comfort on asset quality remains the highest. Management has
guided of credit cost of 45-50bp v/s 82bp in FY16.
Post-merger with eIVBL , share of lending business in steady state profitability is
likely to increase to ~84% - providing much needed stability to earnings. Capital
light nature of capital market and asset management businesses can provide
upside to ROE if there is a strong improvement in business cycle. We expect
consolidated ROEs to improve to ~15% by FY18 on back strong improvement in
banking business ROAs to ~1.8%.
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. We are positive on the
business with the expected operating leverage from eIVBL. At our SOTP of
INR933, KMB will trade at 3.6x September 2018 Consolidated BV (pro-forma
merged basis).
Buy.
26 October 2016
5

Kotak Mahindra Bank
Exhibit 8: Kotak Mahindra: SOTP Valuation (September 2018 based)
Value
(INR B)
1,530
1,327
159
44
78
45
17
15
55
50
4
46
1,708
1,440
18.6
INR b
FY17
Net Interest Income 80.8
Other Income
32.7
Total Income
113.5
Operating Expenses 55.8
Operating Profits
57.7
Provisions
7.2
PBT
50.5
Tax
17.4
Standalone PAT
33.1
Consolidated PAT
49.1
Loans
1,400
Deposits
1,594
Margins (%)
4.4
SA RoA (%)
1.6
Core RoE (%)
13.0
INR b
Value
(USD B)
22.7
19.7
2.4
0.7
1.2
0.7
0.3
0.2
0.8
0.7
0.1
0.7
25.3
21.4
18.6
INR per
share % To Total Rationale
834
89
723
78
4x Sept 2018 Core NW; ~1.8% RoA and ~15% Core RoE
87
9
3x Sept 2018 NW; 15-16% Core ROE
24
3
3x Sept 2018 NW
42
5
25
3
5% of average AUM of FY18 and FY19
8
1
12% of average AUM of FY18 and FY19
9
1
5% of average AUM of FY18 and FY19
30
3
27
3
15x average earnings of FY18 and FY19
2
0
1x September 2018 NW
27
3
933
100
Implied 3.6x Sept 2018 BV; ROE of 15-16%
785
18.9
Old Est.
FY18
97.2
41.4
138.6
64.2
74.4
7.9
66.5
22.9
43.5
62.3
1,708
1,881
4.5
1.8
14.9
Revised Est.
FY17 FY18 FY19
81.1
95.5 114.3
32.3
39.5
48.7
113.5 134.9 163.0
56.0
62.7
72.1
57.5
72.2
90.8
6.5
7.3
8.9
50.9
64.9
81.9
17.6
22.4
28.3
33.4
42.5
53.6
48.9
60.7
75.0
1,400 1,680 2,050
1,560 1,825 2,172
4.4
4.5
4.5
1.6
1.8
1.9
13.1
14.6
15.9
Change (%)
FY17
-1.8
-4.7
-2.7
-2.3
-3.0
-8.4
-2.4
-2.4
-2.4
-2.6
-1.6
-3.0
Lending Business
Kotak Mahindra Bank
Kotak Prime (Car and other loans)
Kotak Investment Company (LAS)
Asset Management Business
Domestic Mutual Fund
Alternative Assets
Offshore Funds
Capital Markets related Business
Kotak Securities
Kotak Investment Banking (KMCC)
Kotak Life Insurance
Target Value
Current market cap.
Upside (%)
Exhibit 9: We largely maintain estimates
FY19
116.9
51.8
168.7
75.7
92.9
9.8
83.1
28.7
54.4
76.6
2,118
2,295
4.5
1.9
16.1
FY16
0.4
-1.0
0.0
0.4
-0.4
-9.0
0.8
0.8
0.8
-0.4
0.0
-2.2
FY18
-2.2
-5.9
-3.4
-4.7
-2.2
-8.7
-1.5
-1.5
-1.5
-2.1
-3.2
-5.4
Exhibit 10: We largely maintain estimates
Old Est.
FY17 FY18 FY19
Kotak Mahindra Bank (Standalone) 33.1 43.5 54.4
Kotak Mahindra Prime
5.4
6.2
7.1
Kotak Mahindra Investments
2.0
2.4
2.9
Lending Business
40.5 52.1 64.5
International subsidiaries
0.8
1.0
1.3
Kotak Mahindra AMC & Trustee Co 0.9
1.2
1.4
Kotak Investment Advisors
0.5
0.5
0.6
Asset Management Business
2.2
2.7
3.3
Kotak Securities
2.8
3.4
4.2
Kotak Mahindra Capital Company 0.9
0.9
0.9
Capital Market Business
3.7
4.3
5.1
Consol. PAT excluding Kotak Life 46.3 59.1 72.9
Kotak OM Life Insurance
2.9
3.3
3.8
Consolidation Adjust.
-0.1 -0.1 -0.1
Consol. PAT Including Kotak Life 49.1 62.3 76.6
Revised Est.
FY17 FY18 FY19
33.4 42.5 53.6
5.4
6.1
7.0
2.1
2.5
3.2
40.8 51.2 63.8
0.9
1.2
1.5
0.9
1.2
1.4
0.3
0.4
0.4
2.1
2.7
3.4
3.0
3.1
3.6
0.8
0.8
0.8
3.8
3.8
4.4
46.7 57.8 71.6
2.6
3.0
3.5
-0.4 -0.1 -0.1
48.9 60.7 75.0
Change (%)
FY16 FY17 FY18
0.8 -2.4 -1.5
-1.2 -0.9 -0.9
0.9
-1.7
-1.0
-6
0
1
3.4
0.8
-10.3 -13.4
-2.3 -1.8
-0.4 -2.6 -2.1
Source: MOSL, Company
26 October 2016
6

Kotak Mahindra Bank
Exhibit 11: KMB Group: Earnings Estimates
KMB - Consolidated (INR M)
Lending Business
Kotak Mahindra Bank
Kotak Mahindra Prime (car finance)
Kotak Mah Investments (lending)
Capital Market
Kotak Securities
Kotak Investment banking (KMCC)
Asset Management Business
Kotak AMC and trustee co
International Subsidiaries (AMC and IB)
KMIA (alternative assets management)
Sub Total
Growth YoY
Om Kotak Life Ins (from FY06 Onwards)
Consolidated PAT (Incl Insurance)
Growth YoY
Consolidation Adjustments
Reported PAT Per MI and AFF
Add: MI and Affiliates
Cons Profit Post MI and Affiliates
Growth YoY
*Including ING Vysya Bank
FY2011
14,786
11,367
3,179
240
2,338
1,819
519
1,009
173
509
327
18,133
22.5
1,014
19,147
23.6
269
18,878
-25
18,853
23.3
FY2012
19,415
15,414
3,849
153
1,318
1,258
59
405
154
-110
361
21,137
16.6
2,030
23,167
21.0
99
23,068
-183
22,885
21.4
FY2013
24,380
19,737
4,307
336
1,312
1,145
167
401
35
60
307
26,093
23.4
1,900
27,993
20.8
-179
28,172
-158
28,014
22.4
FY2014
26,930
21,603
4,907
420
1,743
1,603
140
660
410
70
180
29,333
12.4
2,390
31,723
13.3
30
31,693
-466
31,228
11.5
FY2015
30,914
24,776
5,077
1,060
3,030
2,900
130
480
-290
520
250
34,423
17.4
2,290
36,713
15.7
-54
36,767
-196
36,571
17.1
FY2016 FY2017E FY2018E FY2019E
27,462
40,849
51,180
63,836
20,898
33,363
42,515
53,639
5,025
5,358
6,118
7,013
1,540
2,128
2,547
3,184
2,835
3,791
3,849
4,440
2,515
3,025
3,083
3,612
320
766
766
827
1,820
2,053
2,727
3,370
720
853
1,207
1,449
1,050
900
1,170
1,521
50
300
350
400
32,117
46,694
57,757
71,646
-6.7
45.4
23.7
24.0
2,510
2,636
3,031
3,485
34,627
49,329
60,787
75,131
-5.7
42.5
23.2
23.6
316
320
25
25
34,311
49,009
60,762
75,106
278
-100
-100
-100
34,589
48,909
60,662
75,006
-5.4
41.4
24.0
23.6
Source: MOSL, Company
Exhibit 12: Kotak Group Earnings Snapshot (% of total)
% to total profit
Lending Business
Kotak Mahindra Bank
Kotak Mahindra Prime (car finance)
Kotak Mah Investments (lending)
Capital Market
Kotak Securities
Kotak Investment banking (KMCC)
Asset Management Business
Kotak AMC and trustee co
International Subsidiaries (AMC and IB)
KMIA (alternative assets management)
Sub Total
Om Kotak Life Ins (from FY06 Onwards)
Consolidated PAT (Incl Insurance)
Less: Cons. Adj, MI and Affiliates etc
Consolidated PAT (Post Adjustments)
*Including ING Vysya Bank
FY2011
78
60
17
1
12
10
3
5
1
3
2
96
5
102
2
100
FY2012
85
67
17
1
6
5
0
2
1
0
2
92
9
101
1
100
FY2013
87
70
15
1
5
4
1
1
0
0
1
93
7
100
0
100
FY2014
86
69
16
1
6
5
0
2
1
0
1
94
8
102
2
100
FY2015
85
68
14
3
8
8
0
1
-1
1
1
94
6
100
0
100
FY2016 FY2017E FY2018E FY2019E
79
60
15
4
8
7
1
5
2
3
0
93
7
100
0
100
84
68
11
4
8
6
2
4
2
2
1
95
5
101
1
100
84
70
10
4
6
5
1
4
2
2
1
95
5
100
0
100
85
72
9
4
6
5
1
4
2
2
1
96
5
100
0
100
Source: MOSL, Company
26 October 2016
7

Kotak Mahindra Bank
Financials: Valuation metrics
66
Rating
CMP
(INR)
289
1,250
529
785
1,308
1,209
78
81
128
69
24
Mcap
EPS (INR)
P/E (x)
BV (INR)
P/BV (x)
RoA (%)
RoE (%)
(USDb) FY17 FY18 FY17 FY18 FY17 FY18
25.5
17.3
20.0 13.3 10.6
145
160
47.9
58.4
70.2 21.4 17.8
332
386
19.1
31.8
37.4 16.6 14.2
243
274
21.8
26.8
34.0 29.3 23.1
208
240
8.3
77.4 100.0 16.9 13.1
389
469
10.9
48.4
60.9 25.0 19.8
333
385
4.0
3.4
4.2
22.9 18.7
43
46
2.1
4.3
5.2
18.8 15.7
50
54
0.6
7.2
8.7
17.9 14.7
69
77
0.5
-1.8
5.6
-38.5 12.3
130
136
0.5
3.0
3.6
8.2
6.7
30
33
141.2
21.1 17.5
30.7
14.7
24.3 17.7 10.8
234
253
4.4
10.8
12.8 13.6 11.4
189
200
1.6
-10.8 21.6 -10.6
5.3
239
255
5.5
14.1
20.0 11.1
7.9
157
173
2.7
26.8
36.8 12.1
8.8
498
527
1.5
22.4
39.1
6.6
3.8
314
348
0.7
16.7
24.2
8.0
5.5
410
428
1.7
25.3
31.4
9.0
7.3
300
324
1.8
1.5
6.4
37.4
8.9
109
114
50.5
16.0 10.4
191.8
19.5 14.9
32.1
34.5
37.8 26.7 21.0
194
217
4.6
39.9
49.6 15.0 12.1
213
253
5.5
68.1
83.7 12.7 10.4
280
315
1.8
8.0
10.1 41.6 33.0
28
35
0.7
30.4
39.7 25.4 19.4
180
215
1.5
31.4
38.8 10.4
8.4
202
231
46.2
21.9 18.4
4.1
29.4
33.4
4.7
4.1
168
194
5.1
24.0
25.5
5.3
4.9
149
167
9.2
5.0
4.5
4.0
70.5
93.8 16.4 12.3
505
579
3.1
14.6
18.1 24.5 19.7
118
131
1.9
34.6
44.2 33.0 25.8
166
204
2.2
28.0
33.6 13.2 11.0
159
180
13.0
14.1 11.4
68.4
14.0 12.1
260.2
17.7 14.0
value of key ventures/Investments; For ICICI Bank and
FY17 FY18 FY17 FY18 FY17 FY18
1.53
1.32 1.13 1.18 10.5 11.2
3.76
3.24 1.90 1.89 18.9 19.6
2.18
1.93 1.32 1.31 13.8 14.4
3.78
3.27 1.61 1.82 14.2 15.4
3.36
2.79 1.77 1.84 21.6 23.3
3.64
3.14 1.83 1.85 15.5 17.0
1.83
1.70 1.24 1.13
8.2
9.4
1.61
1.49 0.75 0.75
8.9
9.9
1.87
1.66 0.95 0.93 11.0 11.9
0.53
0.51 -0.10 0.28 -1.4
4.2
0.81
0.74 0.59 0.62 10.3 11.7
2.75
2.45
1.26
1.15 0.47 0.54
7.9
9.5
0.77
0.73 0.31 0.34
5.8
6.6
0.48
0.45 -0.16 0.29 -4.6
8.7
1.00
0.91 0.47 0.60
9.3
12.1
0.65
0.61 0.25 0.31
5.5
7.2
0.47
0.42 0.37 0.58
7.4
11.8
0.33
0.31 0.23 0.30
4.2
5.8
0.76
0.70 0.57 0.64
8.7
10.0
0.53
0.50 0.08 0.31
1.4
5.8
0.80
0.76
1.68
1.54
4.10
3.22 1.84 1.82 19.4 19.0
2.80
2.36 1.51 1.55 20.3 21.3
3.10
2.76 3.63 3.65 25.5 28.1
11.81 9.58 2.25 2.26 31.3 32.1
4.29
3.59 2.15 2.20 18.3 20.1
1.61
1.41 1.27 1.31 17.0 17.9
4.38
3.87
0.82
0.71 2.63 2.54 18.8 18.5
0.85
0.76 2.37 2.12 16.8 16.2
0.84
0.74
2.29
2.00 2.43 2.75 14.8 17.2
3.02
2.72 2.02 2.19 12.9 14.5
6.86
5.59 3.48 3.38 22.8 23.9
2.33
2.05 3.66 3.57 18.7 19.9
2.34
2.07
2.53
2.23
1.84
1.68
HDFC Ltd BV is adjusted for investments in
ICICIBC*
Buy
HDFCB
Buy
AXSB
Neutral
KMB*
Buy
YES
Buy
IIB
Buy
IDFC Bk
UR
FB
Buy
DCBB
Neutral
JKBK
Neutral
SIB
Buy
Private Agg.
SBIN (cons)*
Buy
261
PNB
Neutral
146
BOI
Neutral
114
BOB
Buy
157
CBK
Neutral
324
UNBK
Buy
148
OBC
Neutral
134
INBK
Buy
228
ANDB
Buy
57
Public Agg.
Banks Agg.
HDFC*
Buy
1,340
LICHF
Buy
598
IHFL
Buy
868
GRHF
Neutral
332
REPCO
Buy
770
DEWH
Buy
326
Housing Finance
RECL
Neutral
137
POWF
Neutral
126
Infra Finance
SHTF
Buy
1,156
MMFS
Buy
357
BAF
Buy
1,142
MUTH
Buy
369
Asset Finance
NBFC Aggregate
Financials
UR=Under Review*Multiples adj. for
subsidiaries
26 October 2016
8

Kotak Mahindra Bank
Financials and valuations (KMB+EIVBL - Proforma-merged)
Income Statement
Y/E March
Interest Income
Interest Expense
Net Interest Income
Change (%)
Non Interest Income
Net Income
Change (%)
Operating Expenses
Pre Provision Profits
Change (%)
Provisions (excl tax)
PBT
Tax
Tax Rate (%)
PAT
Change (%)
Consolidated PAT (incl VYSB)
Change (%)
2011
68,838
37,798
31,040
15.5
14,355
45,395
15.3
25,793
19,602
1.1
2,887
16,715
5,347
32.0
11,367
41.5
18,853
23.3
2012
100,370
63,162
37,208
19.9
16,471
53,679
18.2
29,450
24,229
23.6
1,688
22,541
7,127
31.6
15,414
35.6
22,885
21.4
2013
129,041
81,598
47,443
27.5
18,875
66,318
23.5
34,825
31,493
30.0
2,758
28,735
8,998
31.3
19,737
28.0
28,014
22.4
2014
139,722
84,991
54,731
15.4
22,668
77,399
16.7
40,353
37,046
17.6
4,545
32,501
10,898
33.5
21,603
9.5
31,228
11.5
2015
155,677
93,876
61,800
12.9
29,119
90,919
17.5
48,711
42,208
13.9
4,723
37,486
12,710
33.9
24,776
14.7
36,571
17.1
2016
163,842
94,838
69,004
11.7
26,122
95,126
4.6
54,715
40,411
-4.3
9,174
31,237
10,339
33.1
20,898
-15.7
34,589
-5.4
2017E
179,569
98,434
81,134
17.6
32,347
113,481
19.3
56,017
57,465
42.2
6,528
50,937
17,573
34.5
33,363
59.7
48,909
41.4
(INR Million)
2018E
203,919
108,447
95,472
17.7
39,456
134,928
18.9
62,739
72,189
25.6
7,281
64,908
22,393
34.5
42,515
27.4
60,662
24.0
2019E
236,252
121,985
114,268
19.7
48,712
162,980
20.8
72,149
90,831
25.8
8,939
81,891
28,253
34.5
53,639
26.2
75,006
23.6
Balance Sheet
Y/E March
Net Worth
Deposits
Change (%)
of which CASA Dep
Change (%)
Borrowings
Other Liabilities & Prov.
Total Liabilities
Current Assets
Investments
Change (%)
Loans
Change (%)
Fixed Assets
Other Assets
Total Assets
2011
2012
2013
2014
2015
2016
2017E
98,261
123,309
144,646
197,401
220,521
239,625
271,045
594,552
737,319
923,628 1,002,891 1,240,148 1,386,430 1,559,734
19.5
24.0
25.3
8.6
23.7
11.8
12.5
192,491
244,498
283,534
325,865
412,995
527,764
636,580
21.1
27.0
16.0
14.9
26.7
27.8
20.6
158,709
222,920
269,219
225,641
205,411
209,753
230,729
47,124
43,125
47,809
54,053
67,119
86,790
108,487
898,646 1,126,673 1,385,301 1,479,986 1,733,198 1,922,598 2,169,994
49,924
58,651
65,226
118,060
97,457
108,797
101,863
281,797
342,823
471,517
422,053
513,313
512,602
538,232
22.6
21.7
37.5
-10.5
21.6
-0.1
5.0
529,314
678,159
802,410
888,565 1,069,718 1,186,653 1,400,251
34.7
28.1
18.3
10.7
20.4
10.9
18.0
9,284
9,508
9,640
16,315
16,204
15,516
15,764
28,326
37,532
36,508
34,994
36,507
99,030
113,884
898,646 1,126,673 1,385,301 1,479,986 1,733,198 1,922,598 2,169,994
(INR Million)
2018E
311,083
1,824,889
17.0
782,921
23.0
272,260
130,184
2,538,416
119,081
592,056
10.0
1,680,301
20.0
16,012
130,967
2,538,416
2019E
361,597
2,171,618
19.0
939,505
20.0
321,267
156,221
3,010,703
142,603
651,261
10.0
2,049,967
22.0
16,261
150,612
3,010,703
Asset Quality
GNPA (INR m)
NNPA (INR m)
GNPA Ratio
NNPA Ratio
PCR (Excl Tech. write off)
E: MOSL Estimates
11,567
3,029
2.15
0.57
73.8
11,771
2,899
1.71
0.43
75.4
13,283
3,205
1.63
0.40
75.9
17,037
6,756
1.90
0.76
60.3
22,884
10,722
2.12
1.00
53.1
28,381
12,620
2.36
1.06
55.5
31,862
14,338
2.25
1.02
55.0
33,120
14,904
1.95
0.89
55.0
(%)
36,675
16,504
1.77
0.81
55.0
26 October 2016
9

Kotak Mahindra Bank
Financials and valuations (KMB+EIVBL - Proforma-merged)
Ratios
Y/E March
Spreads Analysis (%)
Avg. Yield-Earning Assets
Avg. Yield on loans
Avg. Yield on Investments
Avg. Cost-Int. Bear. Liab.
Avg. Cost of Deposits
Interest Spread
Net Interest Margin
Profitability Ratios (%)
RoE
RoA
Consolidated ROE
Other Ratios (%)
Int. Expense/Int.Income
Non Int. Inc./Net Income
Cost/Income
Empl. Cost/Op. Exps.
Loans/Deposit Ratio
CASA Ratio
Investment/Deposit Ratio
2011
9.5
11.4
6.3
5.6
5.2
3.9
4.3
2012
10.8
12.8
7.3
7.4
7.0
3.4
4.0
2013
11.0
13.1
7.8
7.6
7.1
3.5
4.1
2014
10.5
12.4
7.7
7.0
6.8
3.5
4.1
2015
10.5
12.0
7.7
7.0
6.8
3.4
4.2
2016
9.8
11.1
6.7
6.2
6.0
3.5
4.1
2017E
9.7
10.5
7.3
5.8
5.5
3.9
4.4
2018E
9.5
10.3
7.0
5.6
5.3
4.0
4.5
2019E
9.4
10.0
6.8
5.3
5.0
4.0
4.5
13.5
1.4
15.5
14.0
1.5
14.8
14.8
1.6
15.0
12.7
1.5
13.4
11.9
1.5
13.0
9.1
1.1
10.9
13.1
1.6
13.7
14.6
1.8
14.8
15.9
1.9
15.8
54.9
31.6
56.8
53.9
89.0
32.4
47.4
62.9
30.7
54.9
51.7
92.0
33.2
46.5
63.2
28.5
52.5
52.4
86.9
30.7
51.1
60.8
29.3
52.1
51.4
88.6
32.5
42.1
60.3
32.0
53.6
48.9
86.3
33.3
41.4
57.9
27.5
57.5
51.5
85.6
38.1
37.0
54.8
28.5
49.4
50.2
89.8
40.8
34.5
53.2
29.2
46.5
50.2
92.1
42.9
32.4
51.6
29.9
44.3
50.2
94.4
43.3
30.0
Valuation
Standalone Book Value (INR)
Change (%)
Consolidated BV (INR)
Change (%)
Price-BV (x)
Consolidated EPS (INR)
Change (%)
Price-Earnings (x)
Dividend Per Share (INR)
Dividend Yield (%)
E: MOSL Estimates
48.6
76.9
56.1
89.6
65.8
104.6
82.2
126.3
120.4
164.5
4.8
20.1
39.1
0.4
0.0
130.6
8.5
181.9
10.5
4.3
18.9
-6.0
41.6
0.5
0.0
147.8
13.1
207.5
14.1
3.8
26.7
41.4
29.4
0.9
0.1
169.6
14.8
239.3
15.3
3.3
33.1
24.0
23.7
1.2
0.1
197.1
16.2
278.5
16.4
2.8
40.9
23.6
19.2
1.5
0.1
10.6
12.4
14.7
16.0
0.1
0.2
0.2
0.2
26 October 2016
10

Kotak Mahindra Bank
Corporate profile
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 1,333
branches and 2,032 ATMs as on March 31, 2016. In 2015,
KMB merged with EIVBL in an all-stock deal.
Source: MOSL/Bloomberg
Exhibit 1: Sensex rebased
Exhibit 2: Shareholding pattern (%)
Sep-16
Promoter
DII
FII
Others
33.7
5.7
35.1
25.6
Jun-16
33.7
5.2
35.5
25.6
Sep-15
33.8
4.2
34.7
27.3
Source: Capitaline
Exhibit 3: Top holders
Holder Name
Europacific Growth Fund
Canada Pension Plan Investment Board -
Managed Byim2
ING Mauritius Investments I
Kotak Securities Limited
Sumitomo Mitsui Banking Corporation
% Holding
4.9
4.9
3.9
2.5
1.8
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
Shankar Acharya
Dipak Gupta
Uday Kotak
Bina Chandarana
Designation
Chairman
Joint Managing Director
Executive Vice Chairman &
MD
Company Secretary
Exhibit 5: Directors
Name
Amit Desai
Prakash Apte
Farida Khambata
S Mahendra Dev
Name
N P Sarda
C Jayaram
Mark Edwin Newman
Uday Chander Khanna
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
S R Batliboi & Co LLP
Type
Statutory
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
MOSL
forecast
26.7
33.1
Consensus
forecast
26.3
32.7
Variation (%)
1.5
1.0
Source: Bloomberg
Source: Capitaline
26 October 2016
11

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SEBI pursuant to a complaint from client Shri C.R. Mohanraj alleging unauthorized trading, issued a letter dated 29th April 2014 to MOSL notifying appointment of an Adjudicating Officer as per SEBI regulations to hold inquiry and
adjudge violation of SEBI Regulations; MOSL replied to the Show Cause Notice whereby SEBI granted us an opportunity of Inspection of Documents. Since all the documents requested by us were not covered we have requested
to SEBI vide our letter dated June 23, 2015 to provide pending list of documents for inspection.
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Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or
indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for preparation of MOSt research
receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues
Disclosure of Interest Statement
Analyst ownership of the stock
Served as an officer, director or employee -
KOTAK MAHINDRA BANK
No
No
Disclosures
A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes
Regional Disclosures (outside India)
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or
which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.
For Hong Kong:
This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures
Commission (SFC) pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412)
has an agreement with Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Kong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of
Schedule 1 to SFO. Any investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of
these securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting
Research Analysis in Hong Kong.
For U.S.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is
not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in
the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This
document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be
engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by
the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal
Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and
therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
For Singapore
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a
subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the
Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Varun Kumar
Varun.kumar@motilaloswal.com
Contact : (+65) 68189232
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931
Kadambari Balachandran
kadambari.balachandran@motilaloswal.com
(+65) 68189233 / 65249115
Motilal Oswal Securities Ltd
26 October 2016
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
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