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Robust all-round performance…

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 the financial services value chain.

* CASA forms ~53% of total deposits aiding lower costs ? Superior RoA of ~2% and RoE of ~12%

Q3FY23 Results: Robust business growth and operational performance.

* Advances up 22.9% YoY to | 3.1 lakh crore, deposits up 12.9% YoY ? NII growth at 30.4% YoY, NIMs expand 30 bps QoQ to 5.47%

* Credit cost at 27 bps. PAT grew 31% YoY, 8.2% QoQ at | 2791 crore ? GNPA declined 18 bps QoQ to 1.9%; net slippages at 0.2% of advances

What should investors do? KMB’s share price has grown by 1.6x over the past five years. Focus on risk adjusted growth, granularity of liabilities and improving wealth management business to aid earnings and keep return ratios.

* We maintain BUY rating on the stoc

Target Price and Valuation: Rolling to FY25E, we value the standalone bank at ~3.35x FY25E ABV and subsidiaries at ~| 497 post holding company discount giving an SOTP target of | 2175.

Key triggers for future price performance:

* Continued focus on unsecured lending to drive growth as well as margins

* Business growth, repricing of rates and shift to high yielding segment to aid margins; though deposit accretion at reasonable cost remains a challenge

* Focus on wealth management business to aid fee income without NPA risk

* Gradual improvement in contribution of subsidiaries to aid valuation of consolidated entity

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 | 1000

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