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Result and Price Analysis

Kotak Mahindra Bank (KMB) reported stable 3QFY24 results with the key pointers being: a) Strong NII (up 16% YoY and 4% QoQ) and sequentially higher provisions, b) GNPA/NNPA ratio stable at 1.73%/0.34%, c) restructured pool inched down to ?4.6bn (13bps of advances) v/s ?5.3bn in the previous quarter, d) credit off-take modest with growth of 15.7% YoY and 3.2% sequentially, e) covid provision held at ?3bn as of 3QFY24, provision for AIF investments worth ?1.9bn, f) the total contingent provisioning (covid + Standard + Specific) stood 0.52% of net advances, h) Total PCR (including covid, general and specific provision) stood ~110% of GNPL amount, g) Headline NIM stable QoQ at 5.22%. Moreover, increased Opex (C/I at 48.4%) led to sequentially lower ROA of ~2.2%. However, we see a weakness in fixed rate saving account growth. It has relatively weak liability franchises (v/s peers: HDFCB and ICICIB) that will be tested in FY25E as deposit competition is intensifying. Nevertheless, asset quality provides comfort for lower credit cost. Hence, the peak ROA (~3% in 4QFY23) likely to settle at the historical range of 2.2 % - 2.4%. We recommend BUY factoring a best in class ROA of around 2.5%.

Gazing the core

NPA ratio stable: The 3QFY24 witnessed a steady asset quality performance as GNPA/ NNPA/PCR/SMA2 stood at 1.73%/0.34%/79%/0.06% against 1.72%/0.37%/79%/0.04% in the previous quarter. The GNPA/NNPA ratio stable sequentially on the back of seasonally lower slippages (?11.8bn v/s ?13.1bn in 2QFY24) and flat reductions (?8.3bn v/s ?9.4bn in 2QFY24). The absolute GNPA (?63bn) increased sequentially by 3.5%. The SMA2 book stable at ?2.1bn (6bps of loans). The total restructuring amount (covid + MSME) moderated to ?4.6bn (0.13%) against ?5.3bn (0.15%) in 2QFY24 out of which covid related restructuring is ~?1.9bn and rest is MSME restructuring. The provisioning expenses stood at 5.8bn higher from the previous quarter. The bank has made ?1.9bn of provision towards AIF investment (no ever greening spoken by management). Covid provision continued to be held at ?3.2bn and total provisions (excluding PCR) stood 0.52% of net loans.

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