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RoA below ICICI’s but multiple still higher

Our view – Slowdown in loan growth and elevated opex are talking points

Credit subs and IBPC/BRDS keep net advances growth at 16% despite pure advances growth of 19% YoY: Credit subs have de-grown -1% YoY whereas, IBPC/BRDS (which reduce net advances) have grown materially. Management stated that the bank is capable of growing at 1.75-2x of nominal GDP when it intends to grow.

Net interest margin was maintained on sequential basis mainly through balance sheet mix change: The NIM was 5.22%, flat QoQ and down from 5.47% in the same quarter last year. Margin benefited from proportion of advances rising in interest-earning assets. The share of unsecured retail including retail microfinance was 11.6% of total advances. The bank remains comfortable in taking this share to mid-teens of loan book.

Cost to assets is above 3% due to continued investments being made by the bank: Employee cost rose fast due to retiral cost and ESOP expense whereas, other opex rose fast due to promotional and marketing expenses. Management wants to bring cost to assets ratio to below 3%.

Slippage declined on sequential basis whereas credit cost rose materially due to onetime provisions: Gross NPA additions amounted to Rs 11.77bn for 3QFY24 compared with Rs 13.14bn during 2QFY24. Provisions were Rs 5.79bn, up by 58% QoQ and 289% YoY, translating to calculated annualised credit cost of 65bps. Provision of around Rs.1.9bn were towards applicable Alternate Investments Funds (AIF) exposure.

We maintain a less-than-bullish ‘ADD’ rating on KMB with a revised price target of Rs 2160: We value the standalone bank at 2.9x FY25 P/BV for an FY24E/25E/26E RoE profile of 13.1/13.4%/13.9%. We assign a value of Rs 604 per share to the subsidiaries, on SOTP

Result Highlights (See “Our View” above for elaboration and insight)

? Asset quality: Gross slippages amounted to Rs 11.77bn (annualised slippage ratio of 1.3%) and recoveries and upgrades were healthy at Rs 8.3bn

? Margin picture: NIM was stable QoQ to 5.22%, supported by proportion of advances rising in interest-earning assets

? Asset growth: Advances grew 3.2%/15.7% QoQ/YoY driven on sequential basis by healthy growth across various retail loan segments and SME.

? Opex control: Total opex grew 7.1%/14.2% QoQ/YoY, staff cost grew 7%/18.3% QoQ/YoY and Other expense grew 7.2%/11.5% QoQ/YoY

? Fee income: Fee income grew 5.8%/26.5% QoQ/YoY, where the sequential growth was driven by Distribution and syndication fees

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