Kotak Mahindra Bank (KMB standalone) 1QFY20

Kotak Mahindra Bank (KMB standalone) 1QFY20: Moderation in Advances growth, stable asset quality

• KMB reported advances at Rs 2,080 bn, 18% higher YoY.
• NII at Rs 31,730 mn was 23% higher YoY.
• NIM for 1QFY20 was 4.49% compared to 4.28% in 1QFY19.
• Provisions were Rs 3,168 mn, 33% lower YoY.
• PAT at Rs 13,602 mn was 33% higher YoY
• GNPA and NNPA were relatively flat at 2.19% and 0.73% respectively for 1QFY20 compared to 2.14% and 0.75% respectively in 4QFY19.

Management commentary:

• Advances growth in corporate and business banking segments has been low. Consumer and commercial advances have reported strong growth of 20%+ in FY20.
• Management expects to continue around 20% growth in advances.
• NIM expansion is likely due to pricing power and lower cost of funds.
• Interest rate on Savings accounts below Rs 1 lac is reduced to 4% from 5% earlier. Benefit of the rate reduction will reflect in 2QFY20.
• Provision for retirement benefit has been significantly higher YoY due to lower interest rates.

Consensus Estimate (Source: marketscreener website)
• The stock price was Rs 1,494/- on 23^rd July 2019 and traded at 5.8x/3.7x  the consensus Book value for FY20E/21E of Rs 258/404  respectively. 
• Consensus target price is Rs 1,499/- implying PB of 3.7x for FY21E BVPS of Rs. 404/-