Buy Kotak Mahindra Bank Ltd.
Target : Rs 831
CM Price: Rs754.80
All-round performance, stock split announced…
Kotak Mahindra Bank (KMB) declared an excellent set of Q4FY10 results as consolidated PAT grew 98.7% YoY to Rs 419 crore. On a standalone basis, the banking vertical reported a 97% YoY jump in PAT of Rs 202.4 crore (I-direct estimate- Rs 146.2 crore) on higher than-expected growth in the core business and robust non interest income. The performance of other capital markets businesses was in line with expectations.
- Banking operations gaining momentum :The standalone bank witnessed good traction in core operations as advances grew 25% YoY. This is indicative of the fact that the bank is coming back to the growth track. Growth in corporate loans continued to dominate asset growth that grew 134% YoY. NII grew 37% YoY. On the other hand, deposits grew 37% YoY. Non interest income showed robust growth of 119% YoY that aided profitability growth of 97%. On asset quality, earlier run down on the retail loan portfolio helped reduce GNPA by 23% QoQ. GNPA and NNPA stood at 2.38% and 1.25%, respectively, in Q4FY10.
- Capital markets business: Competition a key concern going ahead Though operational matrices have shown YoY growth for the capital market linked business, the securities business of Kotak continues to face market share pressure (3.75% in Q4FY10 vs. 3.9% in Q3FY10) from the unorganised sector. Average daily turnover stood at Rs 3,600 crore vs. Rs 3,800 crore in Q3FY10 in spite of overall market volumes growing QoQ. The PAT for the securities and investment banking businesses grew by – 19% QoQ and -16% QoQ, respectively.
Valuation
We have revised our multiples for the banking business keeping in view the growth emanating from there. On the other hand, we believe competition in the securities and investment banking will keep market share under pressure. We believe this will put a cap on valuations. We have revised our SOTP target to Rs 831 with a BUY rating on the stock. The company has also announced 5:1 stock spilt.
Other Business highlights
Kotak Mahindra Capital (investment banking arm) reported a PAT of Rs 13.4 crore in Q4FY10 vs. a loss of Rs 3.8 crore in Q4FY09 as fund raising activity in the primary markets has gained momentum. The vertical reported a topline of Rs 38.2 crore in Q4FY10 vs. Rs 9 crore in Q4FY09.
We expect this segment to be buoyant on account of foreseen capital raising plans of Corporate India
- As of Q4FY10, Kotak Mahindra Prime’s (KMP) advances book stood at Rs 8,311 crore as against Rs 5,571 crore in Q4FY09. The PAT for KMP stood at Rs 58.6 crore in Q4FY10. The net NPA for the segment stood at 0.37% in Q4FY10 as against 0.0.45% in Q3FY10
- On the asset management side the AUM of the domestic business stood at Rs 34,800 crore (equity AUM of Rs 4,900 crore). On the alternate asset management side, the India dedicated AUM stood at $1.2 billion whereas the international AUM stood at $1.6 billion.
Report card
| Attribute | Value | Date |
|---|---|---|
| PE ratio | 45.91 | 26/05/10 |
| EPS (Rs) | 16.12 | Mar, 10 |
| Sales (Rs crore) | 880.76 | Mar, 10 |
| Face Value (Rs) | 10 | |
| Net profit margin (%) | 8.35 | Mar, 09 |
| Last bonus | 3:2 | 07/06/05 |
| Last dividend (%) | 8.5 | 11/05/10 |
| Return on average equity | 7.06 | Mar, 09 |
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