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Robust business growth; margin continues to scale newer highs

Asset quality remains strong

* KMB reported strong earnings, with standalone PAT up 27% YoY to INR25.8b (7% beat), driven by lower provisions even as PPOP grew 14% YoY. Consolidated PAT grew 21% YoY to INR36.1b.

* Loan growth remains healthy, with a 25bp QoQ expansion in margin to 5.17%. CASA ratio moderated by 190bp QoQ to 56.2%.

* Gross slippages moderated to INR9.8b, of which INR3.3b got upgraded in 2QFY23 itself. Healthy recoveries and upgrades, enabled a 16bp/7bp QoQ decline in the GNPA/NNPA ratio. KMB reversed INR440m of COVID-related provisions. Outstanding COVID-related provisions stood at INR4.4b (15bp of loans). We maintain our Neutral rating.

NIM improved by 25bp QoQ to 5.17%; asset quality robust

* KMB reported a standalone PAT of INR25.8b (7% beat), aided by lower provisions as the bank reversed COVID-related provisions of INR440m. Consolidated PAT grew 21% YoY to INR36.1b.

* NII grew 27% YoY (in line), led by loan growth of 5% QoQ and margin expansion of 25bp QoQ to 5.17%. Other income grew 8% YoY. Core fee income grew a healthy 24% YoY.

* Growth in OPEX stood higher as the bank continues to invest in building a digitally savvy franchise by hiring in technology and other functions. As a result, PPOP/core PPOP grew 14%/31% YoY.

* Loan book grew 5% QoQ and 25% YoY, led by healthy traction across segments. The bank reported healthy sequential trends in Home, Personal, Business, and Consumer Durable loans, and Credit Cards. Deposits grew 11.5% YoY and 3% QoQ, while the CASA mix moderated by 190bp QoQ to 56.2%. CASA and TDs (below INR50m) fell to 86% in 2Q v/s 88% in 1QFY23.

* Gross slippages moderated to INR9.8b, of which INR3.3b was upgraded in 2QFY23 itself. GNPA/NNPA ratio improved by 16bp/7bp QoQ to 2.08%/ 0.55%, aided by higher recoveries and upgrades of INR9.5b. PCR improved to 73.7%. KMB carries outstanding COVID-related provisions of INR4.4b.

* SMA-2 advances fell further to INR1.19b (v/s INR1.59b in 1QFY23). Outstanding restructured portfolio stood at INR9.9b (0.34% of advances), with the bank holding an additional provision of INR2.07b (10% higher than the regulatory requirement).

* Subsidiaries Kotak Prime/Kotak Capital/Kotak Securities/Kotak Investments reported a net earnings decline of 8%/62%/ 8%/12%. Kotak Life reported a PAT of INR2.7b v/s INR1.55b in 2QFY22.

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