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Liability franchise strengthens; CASA mix scales new peak
KMB has released its business update for 4QFY20. Below are the key highlights:
* Notwithstanding the liability challenges faced by several banks in 4QFY20, KMB reported strong traction in deposits and increased 16.4% YoY/9.8% QoQ to INR2.6t. Certificate of deposits has declined 46% QoQ to INR44b.
* CA deposits grew 10.5% YoY/16.9% QoQ to INR430b while SA deposits increased a sharp 31.3% YoY/14.0% QoQ to INR1.1t. Thus, CASA ratio for the bank increased 370bp YoY/250bp QoQ to ~56.2%.
* Loan book growth was muted at ~6.7% YoY/1.3% QoQ to ~INR2.2t, reflecting the slowdown due to the COVID-19 breakout, which impacted disbursements during the last fortnight of Mar’20.
* The bank has recently cut interest rate for SA balances >INR1lac to 5% (v/s 6% earlier) from 1st Apr’20. This should drive sharp reduction in funding cost over FY21E as saving deposits account for robust 40% of total deposits.
* Valuation and view: KMB continues to report steady progress in building the liability franchise while strong credibility has enabled it to gain further share in an environment where the depositor’s faith is already fragile. Loan growth remains muted as KMB is cautious in a weak macro environment, which has got further aggravated due to the outbreak of COVID-19. KMB has maintained steady coverage ratio while recent reduction in SA rate (savings mix of 40%) should enable steep reduction in funding cost and support margins. We continue believing in KMB's capability to deliver in a challenging environment and appreciate the progress it is making in building a diversified banking franchise. Maintain Neutral with revised PT of INR1,400 (3.4x Sep’21E ABV for the bank+ INR405 for subsidiaries).
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