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Result and Price Analysis

Kotak Mahindra Bank (KMB) reported stable 2QFY24 results with the key pointers being: a) Strong NII (up 24% YoY and 1% QoQ) and steady provisions, b) GNPA/NNPA ratio stable at 1.72%/0.37%, c) restructured pool inched down to ?5.3bn (15bps of advances) v/s ?6.1bn in the previous quarter, d) credit off-take strong with growth of 18.5% YoY and 6% sequentially, e) covid provision held at ?3.2bn as of 2QFY24, provision write-back worth ?160mn, f) the total contingent provisioning (covid + Standard + Specific) stood 0.55% of net advances, h) Total PCR (including covid, general and specific provision) stood ~110% of GNPL amount, g) Headline NIM inched down 42bps QoQ to 5.15%. Moreover, increased Opex (C/I at 46.5%) led to sequentially lower ROA of ~2.48%. 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 FY24E 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 more than 2.5%.

Gazing the core

NPA ratio stable; covid provision write-back continues: The 2QFY24 witnessed a steady asset quality performance as GNPA/NNPA/PCR/SMA2 stood at 1.72%/0.37%/79%/0.04% against 1.77%/0.4%/78%/0.05% in the previous quarter. The GNPA/NNPA ratio increased sequentially on the back of seasonally higher slippages (?13bn v/s ?12bn in 1QFY24) and flat reductions (?11.4bn v/s ?10.6bn in 1QFY24). The absolute GNPA (?60.8bn) increased sequentially by 3%. The SMA2 book stable at ?1.6bn (4bps of loans). The management reiterated about the books’ quality and see no visible area of stress. The total restructuring amount (covid + MSME) moderated to ?5.3bn (0.15%) against ?6.1bn (0.19%) in 1QFY24, out of which covid related restructuring is ~?2bn and rest is MSME restructuring. The provisioning expenses stood at 3.7bn stable against the previous quarter. Nevertheless, the bank has utilized covid provision worth ?160mn in this quarter. Covid provision continued to be held at ?3.2bn and total provisions (excluding PCR) stood 0.55% of net loans. 

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