Kotak Mahindra Bank
BSE SENSEX
38,031
S&P CNX
11,346
22 July 2019
1QFY20 Results Update | Sector: Financials-Banks
CMP: INR1,454
TP: INR1,400 (-4%)
Neutral
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In-line performance; loan growth outlook softens
KMB reported 1QFY20 standalone PAT of INR13.6b (+33% YoY, in-line).
Consol. PAT stood at INR19.3b (+23% YoY).
NII grew 23% YoY to INR31.7b (in-line), led by healthy margins of 4.5%
(+20bp YoY, flattish QoQ). Other income increased 12% YoY to INR13.1b.
Loan book growth came in lower than expected at 18% YoY to INR2.2t and
reflected the slowdown being reported by a few other banks. Moderation in
loan growth can mainly be attributed to a 4% QoQ decline in agri loans and
slower growth in the corporate/BB, CV and personal loan segments.
Average SA deposits grew 21% YoY, while average CA balances were up 23%
YoY. CASA mix stood at 50.7% (52.5% in 4QFY19). Cost of SA declined
sequentially by 15bp to 5.5% aided by reduction in SA rate for balance
below INR1 lac. Post the recent Supreme Court ruling and the change in
regulation, the bank has begun sourcing 811 accounts on the basis of
voluntary use of Aadhaar. The monthly acquisition run-rate, thus, has
already reached the levels prior to this change.
GNPLs increased 3.3% QoQ, while net NPLs declined 1.3% QoQ. PCR ratio,
thus, improved 150bp QoQ to 67%. SMA-2 advances stood at INR3.3b (16bp
of loans v/s 7bp in 4QFY19).
Other highlights:
(a) Tier 1 ratio stood at 17.3% (+40bp QoQ). (b) Opex
increased 21% YoY/2% QoQ to INR20.8b. C/I ratio, thus, improved 72bp
QoQ to 46.4%. (c)
Amongst subs,
KMCC and AMC reported 80%/43% YoY
PAT growth, while Kotak Securities reported a 15% YoY decline.
Valuation view:
KMB's operating performance remains strong, although
business growth has shown moderation, reflecting the weakness in the
consumption-linked lending segments and the cautious stance on
corporate/BB and certain segments of agri. We expect the bank to deliver
23% PAT CAGR over FY19-21, led by stable/improving margins and a further
improvement in operating leverage. We estimate FY21 consol. RoA/RoE at
2.2%/13.4%. We continue believing in KMB's capability to deliver in a
challenging environment and appreciate the progress the bank is making in
building a strong liability franchise. Maintain
Neutral
with a TP of INR1,400
(3.8x FY21E ABV for the bank).
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
KMB IN
1,907
2775.7 / 40.3
1555 / 1002
1/9/5
4425
70.0
Financials & Valuations (INR b)
Y/E MARCH
FY19 FY20E FY21E
NII
112.6 138.9 168.8
OP
83.5 104.7 129.5
NP
48.7
60.0
74.2
Cons. NP
72.0
84.3 102.7
NIM (%)
4.2
4.4
4.4
EPS (INR)
25.5
31.4
38.9
EPS Gr. (%)
17.0
23.2
23.6
BV. (INR)
222.1 252.5 290.2
ABV. (INR)
203.2 231.0 265.2
Cons. BV. (INR)
302.7 346.0 399.0
Cons. ABV. (INR)
291.3 333.4 384.6
Cons. RoE (%)
RoE (%)
RoA (%)
Valuations
P/BV (X) (Cons.)
P/ABV (X) (Cons.)
P/ABV (X) (Adj.)
P/E(X) (Adj.)
12.4
12.2
1.7
4.8
5.0
5.0
40.2
12.7
13.2
1.8
4.2
4.4
4.4
32.6
13.4
14.3
1.8
3.6
3.8
3.9
26.4
*Price adjusted for Investment in subsidiaries
Research Analyst: Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542 |
Parth Gutka
(Parth.Gutka@motilaloswal.com)
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com);
Himanshu Taluja
(Himanshu.Taluja@motilaloswal.com);
Yash Agarwal
(Yash.Agarwal@motilaloswal.com)
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.
 Motilal Oswal Financial Services
Kotak Mahindra Bank
Quarterly snapshot for standalone bank (INRm)
Y/E March
Net Interest Income
% Change (Y-o-Y)
Other Income
Total Income
Operating Expenses
Operating Profit
% Change (Y-o-Y)
Other Provisions
Profit before Tax
Tax Provisions
Net Profit
% Change (Y-o-Y)
Deposits (INRb)
Loans (INRb)
Deposit growth (%)
Loan growth (%)
Asset Quality
Gross NPA (INR b)
Gross NPA (%)
Net NPA (INR b)
Net NPA (%)
PCR (%)
1Q
25,829
15.0
11,646
37,475
17,150
20,325
27.4
4,696
15,629
5,380
10,249
12.3
1,897
1,769
16.0
24.3
39.0
2.2
15.3
0.9
60.8
FY19
2Q
3Q
26,891 29,391
16.3
22.8
12,053 9,639
38,944 39,030
17,994 19,646
20,950 19,384
21.5
6.5
3,538
-323
17,412 19,707
5,995 6,798
11,417 12,909
14.8
22.6
2,058 2,138
1,849 1,964
24.2
18.2
21.2
23.5
40.3
2.2
15.0
0.8
62.8
41.3
2.1
14.0
0.7
66.2
4Q
30,479
18.1
12,703
43,182
20,359
22,823
13.1
1,713
21,110
7,032
14,078
25.2
2,259
2,057
17.3
21.2
44.7
2.1
15.4
0.8
65.4
1Q
31,730
22.8
13,047
44,778
20,789
23,989
18.0
3,168
20,822
7,220
13,602
32.7
2,329
2,080
22.8
17.6
46.1
2.2
15.2
0.7
67.0
FY20E
2QE
3QE
33,329 36,106
23.9
22.8
12,597 12,859
45,926 48,966
20,970 22,097
24,955 26,869
19.1
38.6
3,104 3,307
21,851 23,562
7,486 8,110
14,365 15,452
25.8
19.7
2,447 2,551
2,255 2,365
18.9
19.3
21.9
20.4
47.7
2.1
16.7
0.7
65.0
48.9
2.0
17.1
0.7
65.0
FY19
4QE
37,705
23.7
13,983
51,688
22,799
28,889
26.6
3,919
24,971
8,376
16,594
17.9
2,677
2,497
18.5
21.4
50.8
2.0
16.9
0.7
66.7
1,12,590
18.1
46,040
1,58,630
75,148
83,482
16.6
9,624
73,858
25,205
48,653
19.1
2,259
2,057
17.3
21.2
44.7
2.1
15.4
0.8
65.4
FY20E
1,38,871
23.3
52,486
1,91,357
86,654
1,04,703
25.4
13,498
91,205
31,192
60,013
23.3
2,677
2,497
18.5
21.4
50.8
2.0
16.9
0.7
66.7
1Q
V/s
FY20E Our Est
31,940
-1%
23.7
-81
12,597
4%
44,537
1%
20,190
3%
24,346
-1%
19.8
-176
3,590
-12%
20,756
0%
7,174
1%
13,582
0%
32.5
20
2,255
3%
2,163
-4%
18.8
394
22.2
-465
45.9
2.1
16.1
0.7
65.0
1%
10
-5%
-1
196
Source: MOFSL, Company
Exhibit 1: Quarterly performance v/s our estimates (INRm) – Inline earnings
Kotak Bank (standalone)
Net Interest Income
% Change (Y-o-Y)
Operating Profit
% Change (Y-o-Y)
Net Profit
% Change (Y-o-Y)
1QFY20A
31,730
22.8
23,989
18.0
13,602
32.7
1QFY20E
31,940
23.7
24,346
19.8
13,582
32.5
v/s Est.
-1
-1
0
Source: MOFSL, Company
Loan growth slows down led by moderation in corporate and business
banking
Personal loans, credit cards
and small business
proportion increases to 16%
of total loans
Loan growth slowed down to 18% YoY (1.1% QoQ), led by a moderation in
corporate and business banking segment. Retail loan growth was led by strong
growth in personal loans credit card and small business (+29% YoY, +1.7% QoQ),
while CV loans grew at 24% YoY (+1% QoQ). Home loan and LAP grew 24% YoY
(+4% QoQ).
Corporate and business banking segment grew by a modest 7% YoY (+1.6 QoQ),
as management was cautious on lending to the SME sector. Agri book grew 22%
YoY (-4% QoQ).
Composition of personal loans (as % of total loans) increased to 16.2% (14.8% in
1QFY19).
22 July 2019
2
 Motilal Oswal Financial Services
Kotak Mahindra Bank
Avg. SA balances grew 21%
YoY, whereas avg. CA
balances grew 23% YoY
CASA ratio moderates to 50.7%; TD sweep accounts ~7% of total deposits
SA deposits grew 23% YoY/2% QoQ, while CA deposits grew at 27% YoY (-6%
QoQ). SA deposits as a proportion of overall deposits stood at 35.0%.
Strong TD growth at 22% YoY/7% QoQ resulted in a moderation in the CASA
ratio by 180bp QoQ to 50.7%. CASA and TDs (below INR 50m) constitute 82% of
total deposits v/s 81% in 4QFY19.
TD sweep accounts ~7% of total deposits, while weighted average SA rate for
the quarter was 5.5%.
Asset quality ratios remain stable
While the challenges continue in the economy, KMB reported stable asset
quality ratios. Absolute GNPAs increased by 3% QoQ, while NNPAs declined by
1% QoQ. Thus, the GNPL ratio increased 5bp to 2.2%, while the NNPL ratio
declined to 0.7% (-2bp QoQ).
PCR as on 1QFY20 stood at 67.0% v/s 65.4% in 4QFY19 (152bp improvement).
SMA 2 outstanding stood at INR3.3b, which corresponds to 16bp on advances
(v/s 7bp in 4QFY19).
Proportion of equity AUM
stood at 40.1% of overall
AUM v/s 38.9% in 1QFY19
Mixed performance by subsidiaries; auto loan growth declines
Profitability in securities business came in at INR1.1b (-15% YoY).
K-Sec market share declined to 1.7% (v/s 2.6% in 4QFY19).
Profitability in prime business came in at INR1.5b (+10% YoY/-7% QoQ). NNPA
increased to 0.54% v/s 0.44% in 4QFY19.
Profitability in the asset management business came in at INR730m (-3% QoQ),
while average AUM increased 25% YoY (+7% QoQ), led by strong inflows in
equity AUM (+29% YoY) and constitutes 40.1% of total AUM (v/s 38.9% in
1QFY19).
Life insurance profit increased 15% YoY to INR1.3b, led by 38% growth in
premium income. New business premium grew 43% YoY.
Exhibit 3: Domestic AUM increased ~22% YoY
Debt
Offshore Funds
13
4
16
2
21
44
12
4
17
1
24
42
12
3
18
2
26
39
Equity
Alternate assets
17
13
12
3
3
3
17
17
19
2
2
2
26
27
27
37
40
39
PMS
Insurance
12
3
16
1
29
39
12
5
14
2
28
39
12
5
13
2
29
39
Exhibit 2: Auto loan growth moderated to 4% YoY/QoQ
Auto Loans (INR b)
Other Loans (INR b)
Source: MOFSL, Company
Source: MOFSL, Company
22 July 2019
3
 Motilal Oswal Financial Services
Kotak Mahindra Bank
Exhibit 4: K-Sec: PAT declined 15% YoY to INR1.1b
Tot. Inc.
29
23
33
25
PAT
30
33
34
PATM (%)
34 33
31
30
28 27 28 27
2.7 2.7 2.7 2.6
2.4 2.3
2.2 2.2
2.5
1.9 1.9 2.0 1.9
1.7
Exhibit 5: K-Sec market share declined 90bp QoQ
2.9
2.6
1.7
27
Source: MOFSL, Company
Source: MOFSL, Company
Exhibit 6: Investment banking PAT increased 80% YoY
Tot Inc.
PAT
Exhibit 7: Kotak AMC: Equity AUMs trending higher (INRb)
Eq. AUM
PMS AUM
Offshore AUM
679
581 626
543
469 490 510
166 193
293 283 320
406
11 12
186 240 244
211 205
13 14 30
288 329 345 347 330 318 319 316
17 36 39 38 35 34 34 40
Source: MOFSL, Company
Source: MOFSL, Company
Exhibit 8: Trend in composition of PAT
Kotak Bank
30.8%
32.3%
39.6%
Exhibit 9: Growth in standalone PAT v/s subsidiaries PAT
Kotak Bank
27.8%
63%
38%
72.2%
23%
15%
16%
12%
20%
23%
19%
10%
24%
17%
4%
PAT from subsidiaries
34.1%
32.5%
28.8%
PAT from subsidiaries
30.9%
69.2%
67.7%
60.4%
69.1%
65.9%
67.5%
71.2%
-16%
Source: MOFSL, Company
Source: MOFSL, Company
22 July 2019
4
 Motilal Oswal Financial Services
Kotak Mahindra Bank
1QFY20 Conference call highlights
Macro Update
Government of India borrowing from abroad could lead to a further reduction in
interest rates (50bp to 75bp) in the economy.
Reduction in G-sec yields would provide buffer to public sector banks to provide
more and would shore up their capital levels.
KMB will be achieving some market share going forward but would still be
cautious in lending.
Balance sheet and P&L related
Employee cost is a bit higher in 1QFY20 due to higher provisions on the
retirement benefits (as yields have come down).
Bank has grown its market share in the tractor segment (included in Agri
segment) and collection efficiency is not impacted yet. The bank claims to be
one of the largest lender in the tractor segment.
Management has been cautious on crop loans as a segment (ING used to do
crop loans).
Earlier loans used to be provided against land in the name of crop loans by
other banks.
As of 1QFY20, size of the crop loans is very small in Kotak’s portfolio.
Collection in CV/CE segment is not impacted yet.
Due to NBFC stress, KMB is getting to underwrite the loans of their choice with
attractive spreads.
Bank is cautious on lending against illiquid land.
Bank has clubbed the corporate book and business banking during the quarter.
Margins are higher due to pricing power and also due to benefit of lower cost of
funds.
Current SA rate below INR 1 lac: 4% (from 5% earlier). Full benefit of the SA rate
reduction will come in 2Q.
Bulk of the SME book has been re classified into business banking and corporate
book. Some slippages have come from the SME book in this quarter.
Life insurance:
20% to 25% of the book in terms of new business premium is
guaranteed returns and the rest is Non-PAR savings.
Bank will built the consumer durable book slowly.
will use digital in a big way
Opening of the new branches will be based on what a particular region
contributes in terms of assets and liabilities.
Acquisition cost in 811 (digital world) is 15 to 20% of the physical world. But
ticket size in 811 is quite lower.
Post the AADHAR verdict, bank is confident of achieving the same run rate on
customer acquisition as last year.
Guidance
Bank has guided for 20% loan growth for FY20.
22 July 2019
5
 Motilal Oswal Financial Services
Kotak Mahindra Bank
Valuation and view
Strong presence across products and healthy capitalization (Tier 1 of 17.3%),
place the bank in a sweet spot to capitalize on growth opportunities and gain
market share.
Emerging opportunities for mid-size private banks post demon, coupled with
healthy capitalization, leave KMB in a strong position to capitalize. To leverage
on its geographical expansion, management is focusing on product penetration
with higher emphasis on retail loans.
Increased product offering on the combined network, customer acquisition
through wallet mechanism and 811 and cross-sell to existing customers will
keep loan growth healthy. Further, capital light nature of capital market and
asset management businesses can provide upside to RoE if there is a strong
improvement in business cycle.
KMB's operating performance remains strong, although business growth has
shown moderation, reflecting the weakness in the consumption-linked lending
segments and the cautious stance on corporate/BB and certain segments of
agri. We expect the bank to deliver 23% PAT CAGR over FY19-21, led by
stable/improving margins and a further improvement in operating leverage. We
estimate FY21 consol. RoA/RoE at 2.2%/13.4%. We continue believing in KMB's
capability to deliver in a challenging environment and appreciate the progress
the bank is making in building a strong liability franchise. Maintain
Neutral
with
a TP of INR1,400 (3.8x FY21E ABV for the bank).
Exhibit 10: Kotak Mahindra Bank (FY21-based)
Value Value (USD INR per
(INR B)
B)
share
Lending Business
2,278
32.8
1,193
Kotak Mahindra Bank
1,928
27.7
1,010
Kotak Prime (Car and other loans)
276
4.0
145
Kotak Investment Company (LAS)
74
1.1
39
Asset Management Business
145
2.1
76
Domestic Mutual Fund
115
1.6
60
Alternative Assets
8
0.1
4
Offshore Funds
23
0.3
12
Capital Markets related Business
116
1.7
61
Kotak Securities
99
1.4
52
Kotak Investment Banking (KMCC)
18
0.3
9
Kotak Life Insurance
318
4.6
167
Subs value @ 20% discount
744
10.7
390
Target Value (Post 20% holding discount)
2,671
38.4
1,400
- contribution of subs/associates to total PT
28%
% To
Total
85
72
10
3
5
4
0
1
4
4
1
12
28
100
Rationale
3.8x FY21E Net worth
3.5x FY21E Net worth
3.5x FY21E Net worth
5% of FY21E AUMs
17x FY21E PAT
2.4x FY21E Net worth
3.0x FY21E EV
Source: MOFSL
22 July 2019
6
 Motilal Oswal Financial Services
Kotak Mahindra Bank
Exhibit 11: Consolidated earnings snapshot (INRm)
Y/E March
Kotak Bank
Kotak Prime
Kotak Securities
KMCC
Kotak Life
AMC & Trustee
Intl. subs
KIL
Others
Kotak Consol
Minority/associate adjustments
Kotak Consol (after minority/associates)
Contribution of bank in total profits
1Q
10,250
1,390
1,300
250
1,170
510
330
480
280
15,960
(220)
15,740
65%
2Q
11,420
1,570
1,120
140
1,270
520
470
450
130
17,090
380
17,470
65%
FY19
3Q
12,910
1,390
990
30
1,250
760
370
400
110
18,210
230
18,440
70%
FY20
4Q
1Q
14,080
13,600
1,640
1,530
1,110
1,100
210
450
1,380
1,340
750
730
320
290
730
630
150
170
20,370
19,840
10
(520)
20,380
19,320
69%
70%
Source: MOFSL, Company
Exhibit 12: DuPont analysis: Return ratios to remain healthy
Y/E March
Interest Income
Interest Expense
Net Interest Income
Fee income
Trading and others
Non-Interest income
Total Income
Operating Expenses
Employee cost
Others
Operating Profits
Provisions
NPA
Others
PBT
Tax
RoA
Leverage (x)
RoE
FY17
8.70
4.71
3.99
1.49
0.22
1.71
5.70
2.76
1.36
1.40
2.94
0.41
0.30
0.11
2.53
0.85
1.68
7.9
13.2
FY18
8.24
4.26
3.98
1.60
0.09
1.69
5.67
2.68
1.23
1.45
2.99
0.39
0.26
0.13
2.59
0.89
1.70
7.4
12.5
FY19
8.30
4.40
3.90
1.57
0.02
1.60
5.50
2.60
1.10
1.50
2.89
0.33
0.29
0.04
2.56
0.87
1.69
7.2
12.2
FY20E
8.41
4.34
4.07
1.52
0.02
1.54
5.61
2.54
1.04
1.49
3.07
0.40
0.34
0.06
2.67
0.91
1.76
7.5
13.2
FY21E
8.38
4.24
4.14
1.49
0.02
1.51
5.65
2.47
0.98
1.49
3.18
0.41
0.35
0.06
2.77
0.95
1.82
7.8
14.3
Source: MOFSL, Company
22 July 2019
7
 Motilal Oswal Financial Services
Kotak Mahindra Bank
Financials and valuations
Income Statement
Y/E March
Interest Income
Interest Expense
Net Interest Income
Non-Interest Income
Total Income
Growth (%)
Operating Expenses
Pre Provision Profits
Growth (%)
Core Operating Profits
Growth (%)
Provisions (excl. tax)
PBT
Tax
Tax Rate (%)
PAT
Growth (%)
Consolidated PAT
Growth (%)
FY16
1,63,842
94,838
69,004
26,122
95,126
4.6
54,715
40,411
-4.3
38,279
-1.6
9,174
31,237
10,339
33.1
20,898
-15.7
34,589
-5.4
FY17
1,76,989
95,728
81,261
34,772
1,16,033
22.0
56,185
59,848
48.1
55,432
44.8
8,367
51,481
17,366
33.7
34,115
63.2
49,404
42.8
FY18
1,97,485
1,02,168
95,317
40,522
1,35,839
17.1
64,257
71,582
19.6
69,459
25.3
9,400
62,182
21,339
34.3
40,843
19.7
62,010
25.5
FY19
2,39,432
1,26,842
1,12,590
46,040
1,58,630
16.8
75,148
83,482
16.6
82,773
19.2
9,624
73,858
25,205
34.1
48,653
19.1
72,041
16.2
FY20E
2,86,941
1,48,070
1,38,871
52,486
1,91,357
20.6
86,654
1,04,703
25.4
1,03,979
25.6
13,498
91,205
31,192
34.2
60,013
23.3
84,346
17.1
(INRm)
FY21E
3,41,751
1,72,946
1,68,805
61,409
2,30,213
20.3
1,00,665
1,29,548
23.7
1,28,811
23.9
16,818
1,12,730
38,554
34.2
74,176
23.6
1,02,684
21.7
Balance Sheet
Y/E March
Equity Share Capital
Preference Share Capital
Reserves & Surplus
Net Worth
Of which Equity Net worth
Deposits
Growth (%)
of which CASA Dep.
Growth (%)
Borrowings
Other Liabilities & Prov.
Total Liabilities
Current Assets
Investments
Growth (%)
Loans
Growth (%)
Fixed Assets
Other Assets
Total Assets
FY16
9,172
-
2,30,453
2,39,625
2,39,625
13,86,430
11.8
5,27,770
27.8
2,09,753
86,790
19,22,598
1,08,797
5,12,602
-0.1
11,86,653
10.9
15,516
99,030
19,22,598
FY17
9,204
-
2,66,975
2,76,179
2,76,179
15,74,259
13.5
6,92,647
31.2
2,10,955
84,507
21,45,900
2,25,720
4,50,742
-12.1
13,60,821
14.7
15,376
93,240
21,45,899
FY18
9,528
-
3,65,310
3,74,838
3,74,838
19,26,433
22.4
9,77,750
41.2
2,51,542
96,522
26,49,334
1,96,201
6,45,623
43.2
16,97,179
24.7
15,272
95,059
26,49,334
FY19
9,544
5,000
4,14,461
4,29,005
4,24,005
22,58,804
17.3
11,85,857
21.3
3,22,483
1,11,430
31,21,721
2,46,755
7,11,891
10.3
20,56,948
21.2
16,516
89,611
31,21,721
FY20E
14,544
5,000
4,72,481
4,87,025
4,82,025
26,76,682
18.5
13,91,875
17.4
4,06,296
1,33,716
37,03,719
2,68,219
8,22,234
15.5
24,97,135
21.4
17,672
98,459
37,03,719
FY21E
14,544
5,000
5,44,467
5,59,011
5,54,011
32,22,725
20.4
16,91,931
21.6
5,06,730
1,60,459
44,48,925
3,24,463
9,53,791
16.0
30,46,505
22.0
18,732
1,05,435
44,48,925
Asset Quality
Y/E MARCH
GNPA
NNPA
GNPA Ratio (%)
NNPA Ratio (%)
Slippage Ratio (%)
Credit Cost (%)
PCR (Excl. Tech. write off) (%)
FY16
28,381
12,620
2.36
1.06
2.46
0.76
55.5
FY17
35,786
17,181
2.59
1.26
1.15
0.48
52.0
FY18E
38,254
16,651
2.23
0.98
1.00
0.41
56.5
FY19E
44,679
15,444
2.14
0.75
0.89
0.45
65.4
FY20E
50,760
16,919
2.01
0.68
1.15
0.51
66.7
FY21E
59,794
19,749
1.94
0.65
1.15
0.52
67.0
22 July 2019
8
 Motilal Oswal Financial Services
Kotak Mahindra Bank
Financials and valuations
Ratios
Y/E March
Yield and Cost Ratios (%)
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
Capitalisation Ratios (%)
CAR
Tier I
Tier II
Asset-Liability Profile (%)
Loans/Deposit Ratio
CASA Ratio
Cost/Assets
Cost/Total Income
Cost/Core Income
Int. Expense/Int. Income
Fee Income/Total Income
Non Int. Inc./Total Income
Emp. Cost/Total Expenses
Investment/Deposit Ratio
FY16
12.0
13.5
8.7
7.7
7.4
6.1
5.1
FY17
9.6
10.5
7.9
5.7
5.6
5.0
4.4
FY18E
9.0
9.6
7.5
5.2
5.1
4.5
4.3
FY19E
8.9
9.8
7.6
5.3
5.3
4.5
4.2
FY20E
9.0
9.9
7.4
5.2
5.4
4.5
4.4
FY21E
9.0
9.8
7.4
5.1
5.1
4.6
4.4
17.0
16.1
0.9
17.2
16.5
0.7
18.4
17.8
0.6
17.9
17.4
0.5
17.3
16.5
0.7
16.6
15.7
0.9
85.6
38.1
2.8
57.5
58.8
57.9
25.2
27.5
51.2
37.0
86.4
44.0
2.6
48.4
50.3
54.1
26.2
30.0
49.3
28.6
88.1
50.8
2.4
47.3
48.1
51.7
28.3
29.8
45.9
33.5
91.1
52.5
2.4
47.4
47.6
53.0
28.6
29.0
42.4
31.5
93.3
52.0
2.3
45.3
45.5
51.6
27.1
27.4
41.1
30.7
94.5
52.5
2.3
43.7
43.9
50.6
26.4
26.7
39.7
29.6
Profitability Ratios and Valuation
RoE (%)
RoA (%)
Consolidated ROE (%)
Consolidated ROA (%)
RoRWA (%)
Standalone BV (INR)
Growth (%)
Price-BV (x)
Consolidated BV (INR)
Growth (%)
Price-Consol BV (x)
Standalone Adjusted BV (INR)
Growth (%)
Price-ABV (x)
Consolidated Adjusted BV (INR)
Growth (%)
Price-Consol ABV (x)
Standalone EPS (INR)
Growth (%)
Price-Earnings (x)
Consolidated EPS (INR)
Change (%)
Price-Consolidated Earnings (x)
Dividend Per Share (INR)
Dividend Yield (%)
11.0
1.4
10.4
1.8
1.1
130.6
8.0
181.9
10.8
121.6
18.2
172.5
7.8
12.4
-9.0
18.9
-6.0
0.6
0.0
13.2
1.7
12.8
1.9
1.5
150.0
14.8
6.8
209.1
15.0
7.0
138.8
14.2
7.4
197.7
14.6
7.4
18.6
50.1
55.2
26.8
42.3
54.2
0.0
0.0
12.5
1.7
12.3
2.0
1.5
196.7
31.1
5.2
264.9
26.7
5.5
177.6
28.0
5.8
253.5
28.3
5.7
21.8
17.4
47.0
32.5
21.3
44.7
0.7
0.0
12.2
1.7
12.4
2.0
1.6
222.1
12.9
4.6
302.7
14.3
4.8
203.2
14.4
5.0
291.3
14.9
5.0
25.5
17.0
40.2
37.7
16.0
38.5
1.0
0.1
13.2
1.8
12.7
2.0
1.7
252.5
13.7
4.1
346.0
14.3
4.2
231.0
13.7
4.4
333.4
14.4
4.4
31.4
23.2
32.6
44.2
17.1
32.9
1.0
0.1
14.3
1.8
13.4
2.2
1.8
290.2
14.9
3.5
399.0
15.3
3.6
265.2
14.8
3.9
384.6
15.3
3.8
38.9
23.6
26.4
53.8
21.7
27.0
1.1
0.1
22 July 2019
9
 Motilal Oswal Financial Services
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 1,503 branches and 2,394 ATMs
as on Jun, 2019. In 2015, KMB merged with
EIVBL in an all-stock deal.
Exhibit 1: Sensex rebased
Source: MOFSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Jun-19
Promoter
DII
FII
Others
30.0
11.7
40.5
17.8
Mar-19
30.0
11.5
40.3
18.2
Jun-18
30.0
8.8
39.9
21.3
Source: Capitaline
Exhibit 3: Top holders
Holder Name
CANADA PENSION PLAN INVESTMENT
BOARD
EUROPACIFIC GROWTH FUND
OPPENHEIMER DEVELOPING MARKETS
FUND
SBI Mutual Fund
LIFE INSURANCE CORPORATION OF INDIA
% Holding
6.0
5.0
3.3
2.2
2.0
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
Prakash Apte
Dipak Gupta
Uday Kotak
Jaimin Bhatt
Shanti Ekambaram
D Kannan
Gaurang Shah
Designation
Non Executive Chairman
Joint Managing Director
CEO & MD
President & Group CFO
President – Consumer Banking
President – Commercial Banking
President & CRO
Exhibit 5: Directors
Name
Uday Shankar
Uday Chander Khanna
Farida Khambata
Name
S Mahendra Dev
C Jayaram
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
Walker Chandiok & Co LLP
Type
Statutory
Exhibit 7: MOFSL forecast v/s consensus
EPS
(INR)
FY19
FY20
FY21
Source: Capitaline
MOFSL
forecast
37.7
44.2
53.8
Consensus
forecast
37.8
46.1
56.6
Variation
(%)
-0.2
-4.2
-4.9
Source: Bloomberg
22 July 2019
10
 Motilal Oswal Financial Services
Kotak Mahindra Bank
Explanation of Investment Rating
Investment Rating
Expected return (over 12-month)
BUY
>=15%
SELL
< - 10%
NEUTRAL
< - 10 % to 15%
UNDER REVIEW
Rating may undergo a change
NOT RATED
We have forward looking estimates for the stock but we refrain from assigning recommendation
*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within
following 30 days take appropriate measures to make the recommendation consistent with the investment rating legend.
Disclosures
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
Motilal Oswal Financial Services Ltd. (MOFSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOFSL, the Research Entity (RE) as defined in the
Regulations, is engaged in the business of providing Stock broking services, Investment Advisory Services, Depository participant services & distribution of various financial products.
MOFSL is a subsidiary company of Passionate Investment Management Pvt. Ltd.. (PIMPL). MOFSL is a listed public company, the details in respect of which are available on
www.motilaloswal.com. MOFSL (erstwhile Motilal Oswal Securities Limited - MOSL) is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading
Member with National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Multi Commodity Exchange of India Limited (MCX) and National Commodity
& Derivatives Exchange Limited (NCDEX) for its stock broking activities & is Depository participant with Central Depository Services Limited (CDSL) National Securities Depository
Limited (NSDL),NERL, COMRIS and CCRL and is member of Association of Mutual Funds of India (AMFI) for distribution of financial products and Insurance Regulatory &
Development Authority of India (IRDA) as Corporate Agent for insurance products.
Details of associate entities of Motilal Oswal Financial Services Limited are available on the
website at
http://onlinereports.motilaloswal.com/Dormant/documents/List%20of%20Associate%20companies.pdf
MOFSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and
buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other
compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have
any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the
specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even
though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report
MOFSL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of this report should
be aware that MOFSL may have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research Analysts is not based on any specific merchant
banking, investment banking or brokerage service transactions. Details of pending Enquiry Proceedings of Motilal Oswal Financial Services Limited are available on the website at
https://galaxy.motilaloswal.com/ResearchAnalyst/PublishViewLitigation.aspx
A graph of daily closing prices of securities is available at
www.nseindia.com, www.bseindia.com.
Research Analyst views on Subject Company may vary based on Fundamental
research and Technical Research. Proprietary trading desk of MOFSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated from
MOFSL research activity and therefore it can have an independent view with regards to Subject Company for which Research Team have expressed their views.
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 MOFSL & 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 Hong 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 Financial Services Limited (MOFSL) 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 MOFSL 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 MOFSL , 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., MOFSL 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
In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets
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Paragraph 11 of First Schedule of Financial Advisors Act (CAP 110) provided to MOCMSPL by Monetary Authority of Singapore. Persons in Singapore should contact MOCMSPL in
respect of any matter arising from, or in connection with this report/publication/communication. This report is distributed solely to persons who qualify as “Institutional Investors”, of
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SFA”). Accordingly, if a Singapore person is not or ceases to be such an institutional investor, such Singapore Person must immediately discontinue any use of this Report and
inform MOCMSPL.
Specific Disclosures
1 MOSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company.
2 MOSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company
3 MOSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months
4 MOSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report
5 Research Analyst has not served as director/officer/employee in the subject company
6 MOSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
7 MOSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months
8 MOSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months
9 MOSL has not received any compensation or other benefits from third party in connection with the research report
10 MOSL has not engaged in market making activity for the subject company
********************************************************************************************************************************
22 July 2019
11
 Motilal Oswal Financial Services
Kotak Mahindra Bank
The associates of MOFSL may have:
- financial interest in the subject company
- actual/beneficial ownership of 1% or more securities in the subject company
- received compensation/other benefits from the subject company in the past 12 months
- other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the
specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even
though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.
- acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
- be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies)
discussed herein or act as an advisor or lender/borrower to such company(ies)
- received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services.
The associates of MOFSL has not received any compensation or other benefits from third party in connection with the research report
Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not
consider demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income from
clients which are not considered in above disclosures.
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.
Terms & Conditions:
This report has been prepared by MOFSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and
may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of
MOFSL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature.
The information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty,
representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The
report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOFSL will not treat recipients as
customers by virtue of their receiving this report.
Disclaimer:
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed,
in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose
and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report
constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities
discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives,
financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document
should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including
the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be
suitable for all investors. Certain transactions -including those involving futures, options, another derivative products as well as non-investment grade securities - involve substantial
risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions
contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as
endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and
alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and the employees may from time to time, effect
or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment
banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and
independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already
available in publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the
views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other
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Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263; Website
www.motilaloswal.com.CIN
no.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road,
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Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst:
INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579;PMS:INP000006712. Motilal Oswal Asset Management Company
Ltd. (MOAMC): PMS (Registration No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth Management
Ltd. (MOWML): PMS (Registration No.: INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is a distributor of
Mutual Funds, PMS, Fixed Deposit, Bond, NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. which is a
group company of MOFSL. Private Equity is offered through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL. Research & Advisory
services is backed by proper research. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no assurance or guarantee
of the returns. Investment in securities market is subject to market risk, read all the related documents carefully before investing. Details of Compliance Officer: Name: Neeraj
Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.
* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National
Company Law Tribunal, Mumbai Bench.
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