Buy Kotak Mahindra Bank Ltd : Stable performance continues, growth awaited - ICICI Direct
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Buy Kotak Mahindra Bank Ltd For Target Rs.2040
Stable performance continues, growth awaited…
About the stock: Kotak Mahindra Bank (KMB) is a powerful banking franchise, with promoter stake at 26% and strong promoter led management. It has a presence across financial services value chain.
* CASA forms 60.2% of total deposits aiding lower costs
* Strong RoA of 1.8%and RoE of 12-13% make it a good profitable bank
Q1FY22 Results: Managed well in Covid environment.
* Advances declined 2.5% QoQ to 2.17 lakh crore, deposits up 9.6% YoY
* NII grew 5.6% YoY, NIMs rose 21 bps QoQ to 4.6%. PAT at | 1640 crore
* GNPA at 3.56% vs. 3.25% QoQ, with nominal rise in restructured book. Slippage for Q1FY22 was | 1500 crore
What should investors do?
KMB’s share price has grown by ~2.3x over the past five years (from ~| 745 in March 2016 to ~| 1,740 now).
* We retain our BUY rating on the stock, expecting growth pick-up from Q3FY22 while strong promoter holding provides comfort
Target Price and Valuation: We value standalone bank at ~3.9x FY23E ABV and subsidiaries at | 455 post holding company discount giving SOTP target of | 2040
Key triggers for future price performance:
* KMB’s long term focus continues on maintaining risk adjusted returns
* High provision buffer provides comfort regarding volatility in asset quality and, thus earnings
* Consistent performance over a period of time, healthy return ratios ~1.8% RoA & 12-13% RoE with strong management justify valuations
* Subsidiaries like AMC and securities continue strong performance, life insurance and Kotak Prime was impacted
Alternate Stock Idea: Apart from Kotak, in our coverage we also like Axis Bank.
* Strong liabilities franchise, adequate capitalisation and healthy provision buffer to aid business growth as well as earnings trajectory.
* BUY with target price of | 900
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