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Better loan growth a key for upgrade

Quick Pointers:

? Mixed quarter with miss on core PPoP but better asset quality.

? We trim loan growth by 1% to 15%; FY26 NIM could surprise positively

KMB saw a mixed quarter as core PPoP missed PLe by 4% though asset quality improved. Despite lifting of embargo and acquiring StanC’s PL portfolio of Rs 33bn, loan growth was weak at 13.5% YoY (PLe 15.0%). NII was 3% lower owing to QoQ increase in balance sheet liquidity by Rs377bn leading to softer NIM at 4.5% for FY25 (PLe 4.67%). While we are factoring NIM decline of 10bps YoY in FY26E to 4.4%, levers for upgrade are (1) utilization of excess liquidity (2) faster growth in PL/CC and (3) reduction in fixed SA rate from 3.8%. Asset quality was better since net slippages were lower and higher provisions were partly driven by QoQ increase in PCR by 492bps to 78%. PL credit cost declined whereas credit cost for CC is stable. Hence, we expect provisions to reduce from 73bps in FY25 to 63bps in FY26. We keep multiple at 2.4x but increase TP to Rs2,400 from Rs2,230 as we roll forward to Mar’27 core ABV. Retain ‘BUY

? Mixed quarter; lower NII/loan growth but superior asset quality: NII was lower to PLe at Rs72.8bn (PLe Rs75.1bn). NIM (calc.) was a miss at 4.63% (PLe 4.91%); reported NIM improved by 4bps QoQ to 4.97%. Credit growth was a miss at 13.5% YoY (PLe 15%). Deposit accretion was higher at 11.2% YoY (PLe 10.1%). LDR decreased to 85.5% (87.4% in Q3FY25); CASA ratio increased to 43% (42.3% in Q3’25). Other income was higher at Rs31.8bn (PLe Rs28.6bn) due to better fees. Opex at Rs49.9bn was a 3% miss. Core PPoP at Rs49.1bn was lower to PLe by 4%; PPoP was Rs54.7bn. Asset quality improved; GNPA fell by 8bps QoQ to 1.42% (PLe 1.53%) due to lower net slippages. Provisions were Rs9.1bn (PLe Rs7.1bn) due to QoQ increase in PCR from 73% to 78% and AIF provisions. Core PAT was a 6% miss to PLe at Rs31.1bn. PAT was Rs35.5bn

? Sequential loan growth was soft: Credit growth was soft at 3.2% QoQ since corporate, CC and MFI declined QoQ by 4.0%/4.9%/18.6%. HL, SME and CV saw decent growth QoQ of 4.4%, 6.0% and 5.5%. Since the embargo has been lifted, growth in PL segment jumped QoQ to 16.5%. Bank de-grew MFI due to stress and it is evaluating if this stress is cyclical or structural; portfolio would be adjusted accordingly. Guidance to increase unsecured share to mid-teens is intact. Business growth is guided at 1.5-2.0x of nominal GDP growth; we are factoring loan CAGR of 15% over FY25-27E (1% cut in FY26/27E).

? Levers in place for NIM upgrade; asset quality was better: Calc. NIM for FY25 was lower at 4.5% (PLe 4.67%) owing to QoQ rise in balance sheet liquidity. Due to further likely rate cuts and ~55% share of EBLR linked loans, we are factoring a 10bps decline in FY26 NIM to 4.6%. However, there is a scope of upgrade in NIM if (1) balance sheet liquidity is utilized and (2) unsecured (PL/CC) increases at a faster pace. Asset quality outlook is better in our opinion. Gross slippages were Rs14.9bn (PLe Rs18bn), recoveries were higher at Rs7.5bn (PLe Rs7.2bn) while PCR improved by 492bps QoQ suggesting that provisions for FY26 could be lower than FY25 (73bps)

Q4FY25 Concall Highlights

Balance Sheet

? CV portfolio de-grew YoY on account of i) lesser govt. spending ii) heatwaves iii) liquidity crunch in H1FY25.

? With normal monsoon prediction for FY26, tractor finance may grow well.

? Bank de-grew MFI due to industry stress. Management is watchful if the stress is cyclical or structural and would adjust the portfolio accordingly.

? Guidance to increase unsecured share to mid-teens is intact.

? Bank is maintaining excess capital as it gives ability to withstand downturns and also to seize opportunities for inorganic growth. Excess capital is invested in alternative asset businesses.

? Business growth is expected at 1.5-2x of nominal GDP growth.

? Bank launched Solitaire which brings together several products for customers in a simplified and convenient manner.

Profit & Loss

? Fixed rate SA cost may settle down to 3% amid rate cut environment.

? Reported NIM improved due to i) SA cut ii) higher average CA balance during the quarter & iii) impact of day count.

? Opex increase sequentially was driven by i) PSL purchases ii) brand campaigns and iii) customer acquisitions in 811 & credit card business.

Asset Quality

? As per management, credit cost of PL declined whereas credit cost for CC remained stable. MFI credit costs remained elevated during the quarter and are expected at current levels for next 2 quarters.

? PCR is increased to provide for the vintage unsecured pool. Management expects lesser provisions in the recent unsecured book due to better quality

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