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Revenue/PPOP growth steady; pro-forma GNPA increases

Loan growth showing signs of a recovery

* KMB reported an in line 3QFY21, with PAT of INR18.5b (+16% YoY), led by pickup in loan growth, which supported NII, even as margin stood flat QoQ (~4.5%). On the asset quality front, slippages stood lower (aided by SC order) driving sequential improvement in asset quality ratios, while PCR rose to ~78%. However, pro-forma GNPA/NNPA ratio increased to 3.27%/1.24% (v/s 2.7%/0.74% in 2QFY21). The bank carries COVID-related provisions of INR12.8b (0.6% of advances), while it carried out fresh restructuring worth 0.28% of advances.

* Loan book grew 4.5% QoQ led by steady traction across business segments: Agri, Tractors, Mortgage, and Corporate banking. Disbursals under the ECLG scheme crossed INR97b in Jan’21 (INR94b as of Dec’20). CASA growth remains steady, driving further improvement in the CASA mix to 58.9%.

* We cut our FY21E/FY22E earnings estimates by 3%/1%, factoring in higher credit cost and lower other income. Maintain Neutral.

CASA franchise remains robust; PCR increases to 78%

* KMB reported a 3QFY21 standalone PAT of INR18.5b (+16% YoY; in line), supported by healthy NII growth and lower opex even as provisions increased 63% QoQ. Consolidated PAT grew 11% YoY to INR26b. For 9MFY21, NII/PPOP grew 17%/23%, while PAT grew 13% YoY to INR52.8b.

* NII grew ~17% YoY to INR40b (in line), led by a sequential recovery in loan growth and stable margin at 4.51% (4.52% in 2QFY21). Other income was flat YoY, while fee income grew 11% QoQ (3% YoY). Opex declined 5% YoY (+9% QoQ), resulting in PPOP growth of 29% YoY.

* Loan book declined 1% YoY, but grew 4.5% QoQ, led by steady traction across business segments (Agri, Tractor, Mortgage, and Corporate banking) to INR2.14t. Deposits grew 11% YoY to INR2.65t. CASA deposits increased ~22% YoY, with CASA mix improving to 58.9% (v/s 57.1% in 2QFY21). CASA + TDs (below INR50m) mix increased to ~92% of total deposits.

* On the asset quality front, absolute GNPL/NNPL declined 8%/18% QoQ. The GNPA/NNPA ratio fell 29bp/14bp QoQ to 2.26%/0.5%. PCR improved ~280bp QoQ to 78.4%. Pro-forma GNPA/NNPA ratio increased to 3.27%/1.24% (v/s 2.7%/0.74% in 2QFY21) and SMA-2 advances stood at ~INR6.5b (0.3% of loans). KMB carries total COVID provisions of INR12.8b (0.6% of loans), while it carried out fresh restructuring of 0.28% of loans.

* Subsidiaries reported mixed performance with PAT declining 20% YoY for Kotak Prime (+12% QoQ), flattish for Kotak Life, and 44% YoY (-8% QoQ) increase for Kotak Securities.

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