Stronger than most, but expensive
KMB’s earnings were below estimates, due to high COVID-19 related provisions (a trend seen across banks in 4Q). GNPA growth was contained by the standstill classification. KMB’s strong capital base, stable & granular deposit franchise and superior underwriting practices make it one of the best placed in the sector. A fund-raise, while RoAE dilutive, is not undesirable. It would (1) partly resolve the promoter stake issue and (2) further strengthen the bank’s already strong b/s. Our ADD rating (TP of Rs 1,282, 3.0x Mar-22E ABV + Rs 294 for subs) reflects expensive valuations.
KMB saw strong deposit growth at 16.4/9.8%, driven by 24.5/14.9% CASA growth. Consequently, the CASA ratio rose 367/247bps YoY/QoQ to 56.2% (highest in the industry). Wholesale (floating rate) SA grew ~19% QoQ but a/c for ~16% of the QoQ increase in SA. Strong SA growth is likely to have been driven by m-share gains as few banks saw a steep decline in deposits in 4QFY20. TD growth was relatively tepid at 3.9% QoQ, and understandable given the strong CASA growth and slow loan growth. While overall deposit growth may slow from the current pace, KMB is likely to gain deposit mshare, as a result of increasing polarisation of deposits.
GNPAs dipped (optically) 7.1% QoQ to Rs 50.3bn (2.25%, +11/-21bps) as slippages were ~54% lower at Rs 4.91bn (90bps ann.). Pursuant to the RBI’s Apr-20 circular, slippages and GNPLs were lower by ~Rs 6.6bn. Adj. for this, slippages would’ve grown ~27/8% to ~Rs 11.5bn (2.1% ann., +30/13bps) and GNPAs would’ve been ~Rs 56.9bn (~2.6%). Along with the system, KMB is likely to see higher stress. However, due to calibrated growth in unsecured and MSME loans, and better underwriting practices (as suggested by empirical evidence), KMB is likely to perform better than most peers. Our slippage estimates of ~2.4% over FY21-22E are conservative.
Management commentary on COVID-19: (1) 26% of the borrowers (by value) availed moratorium until Apr-20, and the quantum has increased since. A greater proportion of retail loans were under moratorium. (2) The mgt expressed willingness to participate in the recently announced MSME relief package, subject to govt. backing. (3) It expressed caution on sectors such as unsecured personal loans, CV, hospitality, travel and tourism. (4) Specific loan loss provisions, standard asset provisions and other relevant provisions were in excess of KMB’s GNPLs. (5) The bank saw material MoM SA growth in Apr-20 and this is a stark departure from usual trends, as the bank sees MoM SA de-growth in Apr. Further, this was despite the recent SA rate cut
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