Result Highlights KMB Q4 FY21 was characterized by:
* Further recovery in loan growth (4.5% qoq/2% yoy).
* Strong growth in secured assets (mortgages, CV/CE loans, Agri/Tractor finance grew 8‐10% qoq).
* CASA ratio increasing to highest‐ever 60%+.
* Marginal decline in NIM (underpinned by product mix changes, higher interest reversal and interest‐on‐interest refund).
* Stronger‐than‐expected core fee growth and core PPOP continues to grow well ahead of the balance sheet.
* Elevated credit cost on pent‐up slippages (SC stand‐still/Moratorium flow). Credit cost excl. Covid provisions stood at 84 bps in FY21 v/s 67 bps in FY20. Restructuring and SMA‐2 stands at negligible 20 bps and 5 bps of loans respectively, and surplus Covid provisions were unchanged at 60 bps of loans.
Our view –
Continuity of growth and moderation of credit cost will be key drivers: Management remains focused on growth in both secured and unsecured retail segments and in CV/CE, Agri/Tractor finance and SME working capital segments. The bank would await pricing/risk‐reward improvement in the Corporate segment to push the peddle. NIM should remain firm notwithstanding robust traction in Mortgages, supported by the strong liability franchise.
Considering current product mix, growth caution exercised by the bank before Covid, and resilient asset quality experience of first wave, we believe that contingency provisioning buffer should be adequate to absorb the impact of second wave. We thus keep our credit cost estimate for FY22 unchanged, while marginally lowering the loan growth. We forecast a lift in earnings growth, RoA and RoE from FY23, aided by moderation in cost/income metric and credit cost. The stand‐alone bank trades at 3.2x FY23 P/ABV. Retain BUY and 12 TP of Rs2,005.
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