Rating- neutral; Kotak Bank to raise unsecured loans to mid-teens level

Rating: neutral; Kotak Bank to raise unsecured loans to mid-teens level

KMB reported strong earnings growth, with a 26% y-o-y increase in standalone PAT to Rs35 bn, driven by lower operating expenses and controlled provisions, as PPoP was up 39% y-o-y. Consolidated PAT grew 17% y-o-y to Rs 45.7 bn during the quarter. Loan growth moderated sequentially to around 3%, while the margin expanded further by 28 bps q-o-q to 5.75%. The CASA ratio moderated 50bp q-o-q to 52.8%. Gross slippages increased slightly to Rs 8.2 bn, of which Rs 2.2 bn were upgraded in Q4FY23. However, healthy recoveries and upgrades led to a 12bp/6bp q-o-q decline in the GNPA/NNPA ratios. KMB also reversed Rs130m of Covid-related provisions, and outstanding Covid-related provisions now stand at Rs3.87 bn. Reiterate Neutral rating with a TP of Rs 2,050.Unsecured loan mix rises to 10%; NIM improves 28bp q-o-q

KMB reported a standalone PAT of Rs 35 bn, aided bylower opex and controlled provisions as the bank reversed Covid-relatedprovisions of Rs 130m. Consolidated PAT stood at Rs 45.7 bn. NII grew 35% y-o-y, driven by a loan growth of 3% q-o-q and marginexpansion of 28bp q-o-q to 5.75%. Other income grew 28% y-o-y, aided bycore fee income that rose by a healthy 22% y-o-y. Opex growth was lower supported by lower employee cost even as thebank continued to invest in building a digitally savvy franchise. PPoP grew39% y-o-y, while core PPoP was up 37% y-o-y in Q4FY23.

Subsidiaries performance: Kotak Prime and Kotak Securities reported a net earnings decline of 28% y-o-y each. Kotak Capital posted an earnings growthof 14% while Kotak Investments recorded flat trends. Kotak Life reported an earnings decline of 23% y-o-y to Rs 2.1 bn.

The bank aspires to grow 1.5-2.0x of the nominal GDP on a sustainable basis. The trajectory of interest rate curve depends on monsoon. If monsoon is good,management expects rates to moderate from 2HFY24. KMB is planning to add 150 branches in FY24 v/s 100 branches in FY23. Given the current situation, the bank expects margins to be 5%+ for FY24.

Valuation and view

KMB delivered a healthy quarter, with modest loan growth, strong NII, and controlled provisions. NIM expanded further, and the outlook remains buoyant, given the improving asset mix and a higher mix of floating loans.