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Steady growth in top-line: Kotak Mahindra Bank net interest income for Q2FY24 remained steady at 1% QoQ/23.5% YoY to Rs 6,296.6 Cr. Net Interest Margin (NIM) saw a decline of 35bps QoQ but marginally increased on YoY basis by 5bps to 5.2%. The 35bps QoQ decline in NIM was partially due to one-offs and the bank expects NIM to remain steady going forward. Amongst revenue segments, retail banking segment posted strong revenue growth of 12.2% QoQ/45.7% YoY to Rs 6,668.5 Cr while on profit front it grew by 18.9% QoQ/132.9% YoY to Rs 1,353.5 Cr.

Decline in PAT led by increased costs: PAT during the quarter declined by 7.6% QoQ, however, increased by 23.6% YoY to Rs 3,191 Cr. The decline in PAT was mainly due to increased interest cost by 14.8% QoQ/63.6% YoY along with slow paced growth in interest earned.

Healthy loan growth: Advances increased by 5% QoQ/17.6% YoY to Rs 3.8 Lakhs Cr and remained broad-based with growth across segments such as retail, corporate and SMEs. Amongst retail, CV growth remained strong at 8.8% QoQ/26.2% YoY along with growth in unsecured loan segments credit card, personal loans which saw traction. The increase in unsecured loans also supported NIMs as the margin tends to be higher in these segments.

ActivMoney sweep deposits driving growth: The bank’s deposits growth has been one the best in the industry with growth of 3.8% QoQ/23.3% YoY at Rs 4 Lakhs Cr. The growth was mainly led by term deposits as CASA growth remained muted. ActiveMoney saw a strong growth of 28.1% QoQ/60.7% YoY at Rs 37,136 Cr. It has been one of the primary reasons for the growth in the deposits, however, it has also cannibalized the savings account deposit at some level. The bank expects the ActivMoney deposit shall continue to drive deposit forward. Due to increase in term deposit, CASA ratio declined sharply by 75bps QoQ/790bps YoY to 48.3%.

Asset quality continue to remain healthy – GNPA/NNPA declined during the quarter by 5bps/3bps on QoQ basis and 36bps/18bps on YoY basis at 1.7%/0.4%. The decline in GNPA/NNPA is positive as the bank is seeing increase in the unsecured lending which tends to be riskier as compared to secured lending. Provision coverage ratio stood at 79.1% increasing by 106bps QoQ/536bps YoY. The bank expects credit costs to continue to remain subdued.

Appointment of CEO: The bank announced that the RBI approved appointment of Mr. Ashok Vaswani as the MD & CEO of the bank. The CEO is externally appointed rather than the internal appointment. It is a positive update for the bank as it will reduce the uncertainty regarding the top management of the bank. Mr. Vaswani brings in experience from consumer banking and specializes in leveraging technology for the company. This shall benefit the bank in the long run as the bank aims to achieve technological advancement to provide superior customer services.

Valuation: We remain positive on the Kotak Mahindra Bank as it continues to see healthy loan growth, industry best deposits growth and improving asset quality. It continues to see growth in customers as it increased by 5.3% QoQ/25.1% YoY at 4.6 Cr. The bank’s subsidiaries continue to add significant value and are well placed for growth. We estimate NII/PPOP/PAT to grow at a CAGR of 26.7%/31.2%/30.8% over FY23 -25E. We maintain Buy on the bank with a target price of Rs 2,070 valuing the standalone bank at 2.7x of its FY25E Adj. BV.

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