As per RBI guidelines, Uday Kotak needs to dilute his stake to below 20% by Dec 2018. The dilution requirement has been the main dampener for the bank for a long time, otherwise, on the operational and financial fronts, the bank's performance has been robust. We have a positive outlook on the bank.
KMB is expected to deliver 27% earnings CAGR over FY18-20E led by a well-capitalized balance sheet, granular book, controlled opex through digitalization, and superior asset quality.
Further, the bank is expected to register strong loan growth of 20% CAGR over FY18-20E largely due to a robust increase in corporate and retail segment lending. It also benefits from synergies arising from the acquisition of ING Vysya Bank. We see a CAGR of 19% in NII over FY18-20E. Higher savings deposit growth is expected to further aid the CASA ratio (~44% current), helping the NIM (best in the industry) to be maintained in the range of 4.4-4.6% over FY18-20E. The increasing share of high yielding retail loans and recoveries from corporate segment loans bodes well for its asset quality improvement.
KMB has presence across all financial verticals including banking, securities, investment banking, asset management, consumer finance, and life insurance. The bank's Q2FY19 advances consisted of 58% retail and 42% corporate segment loans. For Q2FY19, the banks consolidated loan book stood at ~Rs2.122lakh cr; GNPA was at 2.15%, NNPA was at 0.81%, net interest margin was 4.1%, capital adequacy ratio was at 18.7%, cost-to-income ratio at 48.2%, and the CASA ratio stood at 50.2%.
Kotak Mahindra Bank Ltd is currently trading at Rs1,278.60 up by Rs97.1 or 8.22% from its previous closing of Rs1,181.50 on the BSE.