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Kotak Mahindra Bank
Downgrade to ‘SELL’
July 2015
Page 2
Kotak Mahindra Bank - Downgrade to ‘SELL’
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Stock Performance (%)
1m 3m 12m
KMB 6% 0% 64%
Sensex 3% -4% 9%
Bankex 6% -1% 26%
Date Jul 13, 2015
Market Data
SENSEX 27661
Nifty 8361
Bloomberg KMB IN
Shares o/s 1,826mn
Market Cap Rs. 1,294bn
52-wk High-Low Rs. 738-424
3m Avg. Vol Rs. 1,439mn
Latest Shareholding (%)
Promoters 33.9
Institutions 39.0
Public 27.1
The upshot of this note is that we believe the market is underestimating the operational challenges of the KMB-VYSB merger
by attaching KMB’s pre-merger high P/ABV multiple to the merged business. Beyond the palpable complementarities of
geographic spread, product/loan book mix and size, we see significant challenges lurking in the form of income impact from
the ING-centric income streams, structurally high cost operating structure, likely employee attrition issues, inept capital
consumption and a probable impairment to asset quality. Downgrade to SELL with a target price of Rs. 597 (valuing the
standalone merged bank at 3x FY17E ABV and subsidiaries at Rs. 168 per share).
Given VYSB’s bloated cost structure, lower yield book (130bps lower than KMB), relatively lower other income to assets,
modest ATM to branch ratio and low ability to price risk (risk adjusted margins lowest in the private sector pack), we believe
revamping RoAs is likely to be a long drawn affair. Crucially, we foresee downside risks to fee income, asset quality and the
CA franchise. Our base case estimates indicate a slow uptick in RoA to 1.7% by FY18, still 20bps lower than KMB’s
standalone RoA in FY15.
Key Thoughts:
• Average employee costs for VYSB are ~14% higher than KMB, leaving open the likelihood of large scale attrition if KMB chooses to
“normalise” pay scales. ~10% of the workforce of the merged bank are unionised and a potential drag on productivity. Given >50%
cost to income ratios for both VYSB and KMB, we believe the merged bank is likely to average a cost to income ratio of 53% over
FY15-18, with opex to assets at ~3.2%
• VYSB’s CA portfolio is 50% of CASA, the highest in the industry while forex income contributes to 1/4th of fee income. Both fee
income and the liability franchise leverage on the ING Group’s linkages; in addition a Service level agreement (SLA) with ING Bank
NV, renewed every year enables advice from counterparts in ING Bank NV for all exposures over Rs.1.7bn for a single borrower and
over Rs.3.4bn for a borrower group. Our sensitivity analysis suggests as much as a 20bps hit to base case RoA estimates if ING
Group dependent fee and CA were to be negated.
• A branch mix top heavy (62%) on urban and metro locations is a headwind to KMB’s stated SME/agri thrust. In addition, the merged
bank’s ATM to branch ratio at 1.5 will be the lowest amongst new gen peers, entailing significant costs in setting up additional
ATMs/interchange fees.
• VYSB’s FY11-14 RoRWA at ~1.2% has been the lowest in the private sector space, resulting in repeated capital infusions at 24
month intervals. Both KMB and VYSB run >80% RWA/assets thereby implying a RoRWA of 2% for the merged bank – amongst the
lowest in the new gen space. Inefficient pricing of risk as evinced by VYSB’s low risk adjusted NIM of 1.5% and a likely impairment to
asset quality consequent to the merger (non-disclosure of VYSB’s 4QFY15 results) are likely to keep credit costs elevated.
ABHINESH VIJAYRAJ [email protected] +91 44 4344 0006
NAVIN BABU E S [email protected] +91 44 4344 0065
NISHANT RUNGTA [email protected] +91 44 4344 0033
YearNII PAT ROE ROA ABV P/ABV
(Rs. mn) (Rs. mn) (%) (%) (Rs.) (x)
FY16E 76,725 28,523 12.4 1.5 126 4.6
FY17E 94,145 37,264 14.2 1.6 145 3.8
FY18E 1,17,286 49,305 16.2 1.7 171 3.1
CMP
Rs. 711
Target
Rs. 597
Rating
SELL
Kotak Mahindra BankRoA revamp likely to be long-drawn
Page 3
We believe the merged bank is likely to see only a slow improvement in NIM & other income counteracting a
likely uptick in costs and provisions. Grey areas on ING’s support and likely asset quality impairment remain
key risks. Our base case estimates suggest a slow pace of RoA improvement with FY17E RoA ~20bps lower
than the standalone KMB in FY15.
RoA and RoE
decomposition
KMB
(Standalone)
FY15
VYSB FY15E
KMB
(Merged)
FY15E
KMB
(Merged)
FY16E
KMB
(Merged)
FY17E
KMB
(Merged)
FY18E
Net Interest Income to
Average Total Assets4.4% 3.0% 3.9% 4.0% 4.1% 4.1%
Other Income to Average
Total Assets2.1% 1.5% 1.8% 1.9% 2.0% 2.0%
Total revenues to Average
Total Assets6.5% 4.5% 5.7% 5.9% 6.1% 6.2%
Operational expenses to
Average Total Assets3.4% 2.6% 3.0% 3.2% 3.3% 3.2%
Provisions to Average
Total Assets1.2% 0.8% 1.1% 1.2% 1.2% 1.2%
Total Costs to Average
Total Assets4.5% 3.4% 4.2% 4.5% 4.5% 4.4%
Return on Assets 1.9% 1.1% 1.5% 1.5% 1.6% 1.7%
Average Equity to Average
Total Assets13.7% 10.0% 12.7% 12.0% 11.3% 10.7%
Return on Equity 14.1% 11.4% 12.2% 12.4% 14.2% 16.2%
Identical cost of liabilities, but widely divergent yield on
advances
Breakup of NIM
KMB
(Standalone)
FY15
VYSB
FY15E
KMB
(Merged)
FY15E
Interest income/ Assets 10.8% 9.8% 10.5%
Yield on advances 12.5% 11.2% 12.0%
Yield on investments 7.9% 8.0% 8.0%
Interest exp/ deposits+borr. 6.9% 6.8% 6.9%
Cost of deposits 6.8% 6.6% 6.7%
Spread 3.9% 3.0% 3.6%
NIM 4.7% 3.3% 4.2%
Similar CIR structures leaves little scope for operating
leverage, VYSB’s avg. employee cost 14% higher than KMB
Cost structures
KMB
(Standalone)
FY15
VYSB
FY15E
KMB
(Merged)
FY15E
Employee/Branch 27 18 23
Avg. employee cost (Rs. Mn) 0.8 0.9 0.8
Cost to Income Ratio (CIR) 55% 56% 56%
VYSB derives a significant proportion of other income through it’s
International Clients and Global Transaction Services groups, both
greatly dependent on the ING Group’s international linkages.
Uncertainly surrounds the level of involvement of the ING group in
the merged bank, a potential risk for other income traction
Uncertainty surrounds the likely impairment in asset quality in
VYSB’s books as a result of the merger.
Asset Quality
KMB
(Standalone)
FY15
VYSB
FY15E
KMB
(Merged)
FY15E
GNPA % 1.9% 1.9% 1.9%
Restructured % 0.2% 1.3% 0.7%
Stressed assets % of networth 9.9% 17.6% 12.6%
Kotak Mahindra BankCost Structures to Remain Elevated
Page 4
… with VYSB employees drawing ~14% higher than KMB
Source: Spark Capital Research
Both VYSB and KMB have consistently run cost to income ratios >50%
Source: Spark Capital Research
Average employee costs for VYSB are ~14% higher than
KMB, leaving open the likelihood of large scale attrition if
KMB chooses to “normalise” pay scales.
~3000 employees or 10% of the workforce of the merged
bank are unionised, a potential drag on
productivity/employee activism.
Since FY09, all the strikes in VYSB barring one have
been industry-level strikes.
The merged bank is likely to average a cost to income
ratio of 53% over FY15-18, with opex to assets at ~3.2%
The merged bank has limited potential for operating leverage…
Source: Spark Capital Research
2.5%
2.8%
2.6%2.5%
2.6%
3.6%3.5%
3.1%
3.0% 3.0%
2.0%
2.2%
2.4%
2.6%
2.8%
3.0%
3.2%
3.4%
3.6%
3.8%
40%
45%
50%
55%
60%
65%
FY10 FY11 FY12 FY13 FY14 FY10 FY11 FY12 FY13 FY14
VYSB KMB
Cost to Income Ratio (%) Opex to Average Assets % (RHS)
3.0%
3.2%
3.3%3.2%
2.9%
3.0%
3.0%
3.1%
3.1%
3.2%
3.2%
3.3%
3.3%
0.40
0.42
0.44
0.46
0.48
0.50
0.52
0.54
0.56
FY15 FY16 FY17 FY18
Cost to Income Ratio (%) Opex to Average Assets % (RHS)
0.690.66
0.86
0.71
0.65
0.750.77
0.70
0.89
0.73
0.90
0.79
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
VYSB KMB
Avg. Employee Cost (Rs.Mn)
FY10 FY11 FY12 FY13 FY14 FY15
Kotak Mahindra Bank
VYSB’s CA proportion at 50% of CASA is the highest in the industry
Source: Spark Capital Research
VYSB derives ~1/4th of other income through forex gains...
Source: Spark Capital Research
... an outcome of large off balance sheet exposures, 4x that of KMB
Source: Spark Capital Research
Service level agreement (SLA) with ING Bank NV, renewed every
year in order to benefit from the intellectual property, expertise and
knowledge of ING Bank NV
Under the terms of the SLA, advice from counterparts in ING Bank
NV obtained for all exposures, that are over 25 million Euros
equivalent for a single borrower and over 50 million Euros equivalent
for one-obligor group.
Advice from ING Bank NV regarding restructuring exposures that are
over 7.5 million Euros.
International clients group set up in FY12, focuses on serving MNCs
with operations in India. This group benefits significantly from ING’s
global network that helps gain access to ING’s core clients with India
business
Global Transaction Services (“GTS”) group focussed on offering cash
management, trade finance and electronic banking, benefits by
growing its current account base.
17% 18% 16%14%
17%
8%6%
50% 48%
37%
30%
39%36%
19%
0%
10%
20%
30%
40%
50%
60%
0%
5%
10%
15%
20%
VYSB KMB HDFCB ICICIBC AXIS KVB FB
CA% CA as % of CASA
219%
150%
261%
222%203%
99%
68% 62%43% 50%
30%
80%
130%
180%
230%
280%
FY10 FY11 FY12 FY13 FY14
VYSB KMB
65% 62%
4% 12%
24% 12%
0%6%
7% 9%
40%
50%
60%
70%
80%
90%
100%
VYSB KMB
Comm, ex, brokerage Profit on sales of inv Forex gain Dividend income Other income
Significant ING Group linkages
Page 5
Kotak Mahindra Bank
Sensitivity of Kotak Mahindra Bank’s Return on Equity (RoE) to change in the fee income & current account (CA) deposits
dependent on ING parent’s business relationships
Source: Spark Capital Research
Sensitivity of Kotak Mahindra Bank’s Return on Assets (RoA) to change in the fee income & current account (CA) deposits
dependent on ING parent’s business relationships
Source: Spark Capital Research
Crystallizing ING Group dependencies
Page 6
RoA Sensitivity
of combined KMB
ING dependent Fee income (% of VYSB fee income)
0% 5% 10% 15% 20% 25% 30% 35% 40%
VY
SB
CA
%
17% 1.54% 1.52% 1.50% 1.48% 1.46% 1.44% 1.42% 1.40% 1.38%
16% 1.53% 1.51% 1.49% 1.47% 1.45% 1.43% 1.41% 1.39% 1.37%
15% 1.51% 1.49% 1.47% 1.45% 1.43% 1.42% 1.40% 1.38% 1.36%
14% 1.49% 1.48% 1.46% 1.44% 1.42% 1.40% 1.38% 1.36% 1.34%
13% 1.48% 1.46% 1.44% 1.42% 1.40% 1.38% 1.36% 1.34% 1.32%
12% 1.46% 1.44% 1.42% 1.40% 1.38% 1.36% 1.34% 1.33% 1.31%
11% 1.44% 1.42% 1.41% 1.39% 1.37% 1.35% 1.33% 1.31% 1.29%
10% 1.43% 1.41% 1.39% 1.37% 1.35% 1.33% 1.31% 1.29% 1.27%
9% 1.41% 1.39% 1.37% 1.35% 1.33% 1.31% 1.29% 1.27% 1.26%
RoE Sensitivity
of combined KMB
ING dependent Fee income (% of VYSB fee income)
0% 5% 10% 15% 20% 25% 30% 35% 40%
VY
SB
CA
%
17% 12.1% 12.0% 11.8% 11.6% 11.5% 11.3% 11.2% 11.0% 10.9%
16% 12.0% 11.9% 11.7% 11.6% 11.4% 11.3% 11.1% 11.0% 10.8%
15% 11.9% 11.8% 11.6% 11.4% 11.3% 11.1% 11.0% 10.8% 10.7%
14% 11.8% 11.6% 11.5% 11.3% 11.2% 11.0% 10.9% 10.7% 10.6%
13% 11.6% 11.5% 11.3% 11.2% 11.0% 10.9% 10.7% 10.6% 10.4%
12% 11.5% 11.4% 11.2% 11.0% 10.9% 10.7% 10.6% 10.4% 10.3%
11% 11.4% 11.2% 11.1% 10.9% 10.8% 10.6% 10.5% 10.3% 10.2%
10% 11.2% 11.1% 10.9% 10.8% 10.6% 10.5% 10.3% 10.2% 10.0%
9% 11.1% 11.0% 10.8% 10.6% 10.5% 10.3% 10.2% 10.0% 9.9%
• Assuming 25% of the erstwhile
ING Vysya Bank’s fee income
being dependent on the parent
ING’s business relationships and
not coming through to the merged
KMB could result in a 10bps fall in
RoAs & 90bps fall in RoEs.
• Similarly, a 6% decline in the
erstwhile ING Vysya Bank’s
current account (CA) deposits
(Zero cost deposits) (assumed
dependency on the parent ING’s
business relationships), not
coming through to the merged
KMB could result in another 10bps
fall in RoAs.
• In a worst case scenario, assuming
both ING dependent CA and other
income streams suffering, we
foresee a 20bps impact to base
case RoA.
Kotak Mahindra BankLoan book complementarity, doesn’t extend to branch mix
Page 7
… the branch mix remains urban/metro centric (62%), a potential headwind to the bank’s SME/agri thrust. Also, the ATM/Branch network of the
combined bank will be the lowest amongst new gen peers at 1.5x, entailing significant costs in additional ATMs/ATM interchange fees
Source: Spark Capital Research
While KMB’s CV&CE, agri and personal loans compliment VYSB’s SME book…
Source: Spark Capital Research
Urban , 31%
Metro, 32%
Semi Urban ,
20%
Rural, 17%
Urban , 18%
Metro, 44%
Semi Urban ,
22%
Rural, 16% Urban ,
24%
Metro, 38%
Semi Urban ,
21%
Rural, 16%
VYSB KMB KMB (merged)
VYSB KMB KMB (merged)
4.8
3.1 2.9 2.6 1.8 1.5 1.2 1.1
- 1.0 2.0 3.0 4.0 5.0 6.0
AX
IS
ICIC
IBC
HD
FC
B
KV
B
KM
B
KM
B (
M)
FB
VY
SB
ATM/Branch Network
ATM/Branch Network
Corporate banking,
31%
CV&CE, 8%Agri, 18%
Business banking
(SME), 10%
Mortgage, 22%
Personal, 9% Others, 2%
Corporate banking,
37%
CV&CE, 1%
Agri, 10%
Business banking (SME), 36%
Mortgage, 14%
Personal, 1%
Others, 1%
Corporate banking,
33%
CV&CE, 5%
Agri, 15%
Business banking (SME), 20%
Mortgage, 19%
Personal, 6%
Others, 1%
Kotak Mahindra Bank
... led by RWA growth consistently outstripping asset growth, resulting
in a bank inefficient on capital consumption
Source: Spark Capital Research
The merged bank drops from a RoRWA of 2.4% to 2%, close to the
bottom amongst peers
Source: Spark Capital Research
Although VYSB’s RoA compares favourably to peers...
Source: Spark Capital Research
... it ranks low on RoRWA...
Source: Spark Capital Research
1.5%
2.3%2.0%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
VYSB KMB KMB (merged)
Return on Risk weighted assets (%)
FY10 FY11 FY12 FY13 FY14
Rs. BnPAT RWA RoRWA
FY15 FY14 FY15 FY15
CUBK 4 136 156 2.7%
HDFCB 102 3,453 4,163 2.7%
KMB 19 661 873 2.4%
IIB 18 673 889 2.3%
YES 20 766 996 2.3%
AXSB 74 2,874 3,603 2.3%
ICICIBC 112 4,986 5,449 2.1%
FB 10 461 513 2.1%
KMB (M) 25 1,130 1,413 2.0%
KVB 5 278 309 1.6%
VYSB 6 469 540 1.2%
1.1%
1.7%1.5%
0.0%
0.5%
1.0%
1.5%
2.0%
VYSB KMB KMB (merged)
Return on Assets (%)
FY10 FY11 FY12 FY13 FY14
-7%
28% 30%24%
11%
24%
36% 35%
28%
8%
-10%
0%
10%
20%
30%
40%
FY10 FY11 FY12 FY13 FY14 FY10 FY11 FY12 FY13 FY14
VYSB KMB
Risk Weighted Assets
Assets growth % RWA growth % (RHS)
Pace of capital consumption set to accelerate
Page 8
Kotak Mahindra Bank
Return on retained earnings lowest amongst comparable peers
Source: Spark Capital Research
VYSB’s ability to price risk on the decline over the past 3 years…
Source: Spark Capital Research
… leading to risk adjusted margins ranking close to the bottom
Source: Spark Capital Research
Inadequate risk pricing in VYSB an additional red flag
Page 9
• VYSB’s incremental risk adjusted yields and
margins (on a falling trajectory) point to a growing
inability to price risk appropriately.
• VYSB’s RoRE ranks well below larger private peers,
and even a few regional banks, despite frequent
capital raises undertaken by the bank.
• Given the widely disparate risk pricing cultures, we
believe a significant shake up in the loan book
could be executed in the wake of the merger
YoA - slippage FY11 FY12 FY13 FY14 FY15 Weighted. Average
KMB 12.2% 13.9% 13.1% 11.4% 11.4% 12.1%
YES 10.0% 12.0% 12.2% 12.0% 11.7% 11.8%
IIB 11.2% 12.7% 12.9% 11.9% 10.8% 11.8%
HDFCB 9.4% 10.7% 11.0% 10.2% 9.9% 10.3%
VYSB 8.4% 10.2% 11.1% 10.2% 7.5% 9.4%
AXSB 7.0% 8.6% 9.3% 9.0% 8.9% 8.8%
ICICIBC 6.7% 8.0% 8.6% 8.4% 7.5% 8.0%
NIM - slippage FY11 FY12 FY13 FY14 FY15 Weighted. Average
KMB 4.5% 4.3% 3.6% 2.9% 3.5% 3.5%
HDFCB 3.7% 3.7% 3.5% 3.1% 3.3% 3.4%
IIB 2.9% 2.5% 2.4% 2.5% 2.2% 2.4%
YES 2.4% 2.5% 2.3% 2.2% 2.6% 2.4%
AXSB 2.0% 2.0% 2.1% 2.3% 2.4% 2.2%
VYSB 1.8% 2.4% 2.6% 2.3% -0.2% 1.5%
ICICIBC 1.1% 1.3% 1.6% 1.7% 1.0% 1.4%
39%
26%
18%
18%
18%
18%
17%
14%
12%
6%
5%
2%
2%
0%
-2%
-4%
-7%
-8%
-20%
-10%
0%
10%
20%
30%
40%
50%
DC
BB
ICIC
IBC
HD
FC
B
YE
S
IIB
FB
AX
SB
KM
B
CU
BK
VY
SB
SB
IN
SIB
KV
B
JK
BK
BO
B
BO
I
CB
K
PN
B
Return on Retained Earnings
Kotak Mahindra Bank
SOTP Valuation FY17E basis FY15
Basis MultipleMarket Cap.
(Rs.mn)
Value per
share
Net worth
(Rs.mn)
PAT
(Rs.mn)
Return on
Equity (%)Comments
Kotak Prime P-ABV 3 1,34,224 74 33,500 5,074 15%Valuing Prime at 3.0x FY17E adjusted book with RoA
assumed to be 2.57%, and growth of 15% p.a.
Kotak Securities P-E 20 76,594 42 23,840 2,896 12%Kotak securities valued at 20x FY17E earnings, assuming
a growth rate of 15% p.a.
KMCC P-E 20 4,869 3 4,150 124 3%KMCC valued at 20x FY17E earnings, assuming a growth
rate of 40% p.a.
Kotak Insurance P-BV 3 40,398 22 12,910 2,289 18% Insurance valued at 3x FY17E book, with 10% growth p.a.
Kotak Investment
Advisors% of AUM 5% 3,415 2 2,660 260 10%
Kotak Investment Advisors valued at 5% of AUM, with
AUM assumed to grow at 10% p.a. (0.46% yield)
Kotak AMC % of AUM 3% 14,565 8 511 -362 -71%Kotak AMC valued at 3% of AUM, with AUM assumed to
grow at 12% p.a. (-0.09% yield)
Kotak International % of AUM 4% 11,091 6 3,531 353 10%Kotak International valued at 4% of AUM, with AUM
assumed to grow at 15% p.a. (0.17% yield)
Kotak Investments P-BV 2 17,603 10 6,172 1,064 17%Investments valued at 2.0x FY17E book, assuming 15%
growth p.a.
Other Subsidiaries P-BV 1 2,713 1 2,089 228 11%Other subsidiaries valued at 1.0x book, assumed to grow
at 8% p.a.
All Subsidiaries 3,05,472 168 89,364 11,926 13%
Kotak Mahindra Bank* P-ABV 3.0 7,80,767 429 2,16,808 24,841 12% Merged Bank valued at 3.0x FY17E ABV and is expected
to grow at 21% CAGR for FY15-FY17, with RoAs
expanding to 1.7% for the merged bank, (RoEs expanding
to 16%).Total 10,86,239 597
SOTP Valuation
Page 10
Kotak Mahindra BankScoring Matrix
Page 11
Scores – 1 to 5 (Higher the better) AXSB HDFCB ICICIBC IIB KMB (M) YES
Market Share & Growth ▲ 78 92 70 92 87 92
Profitability ▲ 74 84 78 82 74 72
Asset Quality ▲ 69 83 55 83 84 79
Capital ▲ 92 88 86 88 82 90
Valuation ▲ 34 20 66 20 28 38
Overall Rank without weights ▼ 6 2 4 3 5 1
Overall Rank with weights ▼ 5 1 6 2 4 3
▲ Higher the better, ▼Lower the better
Kotak Mahindra Banks ranks 4 amongst the six new gen private sector banks in Spark Capital’s proprietary scoring matrix
KMB scores have fallen on the profitability front consequent to taking over the lesser profitable franchise of VYSB.
On the capital front, the bank’s pace of capital consumption worsens impacting scores
The bank currently scores the best in asset quality, but any negative surprises in the erstwhile ING Vysya bank’s asset quality could see
scores deteriorating.
Kotak Mahindra BankFinancial Summary
Page 12
Abridged Financial Statements Key Metrics
Rs.mn FY15 FY15E FY16E FY17E FY18E FY15 FY15E FY16E FY17E FY18E
Profit & Loss Standalone KMB + VYSB combined entity Growth ratios Standalone KMB + VYSB combined entity
Net Interest Income 42,237 62,278 76,725 94,145 1,17,286 ABV per share 15% 11% 11% 16% 17%
Other Income 20,285 29,575 37,208 46,165 57,097 Advances 25% 22% 20% 22% 25%
Fee Income 12,263 20,609 27,399 35,023 44,526 Deposits 27% 23% 22% 22% 25%
Treasury Income 3,148 4,696 5,809 6,742 8,171 NII 14% 14% 23% 23% 25%
Total Income 62,522 91,853 1,13,933 1,40,309 1,74,383 PAT 28% 9% 15% 31% 32%
Operating Expenses 32,547 49,091 61,764 75,385 91,798 EPS 28% 9% 15% 31% 32%
Pre-Provision Profit 29,975 42,762 52,168 64,924 82,585 Asset Quality
Provisions 1,645 5,222 8,952 8,463 7,881 Gross NPA (Rs. mn) 12,372 20,165 28,124 31,498 36,538
PBT 28,330 37,541 43,216 56,461 74,705 Gross NPA 1.9% 1.9% 2.2% 2.0% 1.8%
PAT 18,660 24,841 28,523 37,264 49,305 Net NPA 0.9% 0.9% 1.1% 1.0% 0.9%
Balance Sheet Slippage 1.1% 2.2% 2.2% 1.7% 1.5%
Networth 1,41,441 2,16,808 2,43,514 2,79,980 3,28,486 Coverage 50.8% 53.1% 49.0% 52.0% 51.0%
Deposits 7,48,603 12,29,780 14,98,655 18,28,359 22,85,449 Growth in Gross NPA 16.8% 18.4% 39.5% 12.0% 16.0%
CASA 2,72,174 4,31,094 5,53,140 6,94,777 8,91,325 Asset-Liability Profile
Borrowings & Current Liabilities 1,70,077 2,83,751 3,55,182 4,08,687 5,32,603 Leverage (x) 6.2 6.8 7.4 7.8 8.3
Total Liabilities & Networth 10,60,121 17,31,361 20,98,373 25,18,047 31,47,559 CD ratio 88.4% 88.0% 87.0% 87.0% 87.0%
Cash with RBI & other banks 62,624 1,31,536 1,16,269 1,40,556 1,75,486 CASA 36.4% 35.1% 36.9% 38.0% 39.0%
Advances 6,61,607 10,82,637 13,03,830 15,90,673 19,88,341 Tier I CAR 17.2% 15.3% 14.4% 13.8% 12.9%
Investments 3,04,211 4,73,503 6,24,688 7,26,711 9,15,517 Profitability and Efficiency
Fixed & Current Assets 31,679 55,259 53,585 60,108 68,215 Net Interest Margin 4.7% 4.2% 4.3% 4.4% 4.4%
Total Assets 10,60,121 17,42,936 20,98,373 25,18,047 31,47,559 ROA 1.9% 1.5% 1.5% 1.6% 1.7%
Other Information ROE 14.1% 12.1% 12.4% 14.2% 16.2%
Shares outstanding (mn) 1,545 1,821 1,821 1,821 1,821 Valuation
Current market price (Rs.) 711 711 711 711 711 Book Value per share (Rs.) 92 119 134 154 180
Market capitalisation (Rs. mn) 10,98,285 12,94,465 12,94,465 12,94,465 12,94,465 Adj Book Value per share (Rs.) 88 114 126 145 171
Earnings per share (Rs.) 12.1 13.6 15.7 20.5 27.1 P/ABV (x) 6.9 5.3 4.6 3.8 3.1
Dividend per share (Rs.) 0.5 0.5 0.4 0.4 0.4 P/E (x) 58.9 52.1 45.4 34.7 26.3
Kotak Mahindra BankRecommendation History
Page 13
0
100
200
300
400
500
600
700
800
900
01-Jul-12 01-Jan-13 01-Jul-13 01-Jan-14 01-Jul-14 01-Jan-15 01-Jul-15
Historical Target
Kotak Mahindra Bank
Report Date CMP (Rs.) TP (Rs.) Recommendation
13/May/15 660 729 Buy
23/Mar/15 670 810 Buy
27/Oct/14 530 609 Buy
17/Jul/14 442 516 Buy
02/May/14 402 464 Buy
22/Jan/14 353 406 Buy
24/Oct/13 354 411 Buy
10/Sep/13 340 401 Buy
19/Jul/13 343 311 Sell
03/May/13 359 311 Sell
25/Jan/13 333 290 Sell
26/Oct/12 308 263 Sell
Report Date CMP (Rs.) TP (Rs.) Recommendation
01/Oct/12 325 238 Sell
21/Sep/12 311 238 Sell
07/Sep/12 289 238 Sell
26/Jul/12 271 238 Sell
29/Jun/12 296 310 Buy
Disclaimer
Page 14
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BUY Stock expected to provide positive returns of >15% over a 1-year horizon REDUCEStock expected to provide returns of <5% – -10% over a 1-year
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ADDStock expected to provide positive returns of >5% – <15% over a 1-year
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Disclaimer (Cont’d)
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