Earnings

Kotak Mahindra Bank to announce Q3 earnings on January 20; here is what to expect

Updated : January 17, 2020 06:18 PM IST

The lender has one of the best net interest margins in the banking sector, thanks to low-cost deposit share at 54 percent.

CNBC-TV18 expects the bank's net interest margin to remain steady or improve with loan growth seen at 15 percent or above.

Private lender Kotak Mahindra Bank is all set to announce December-quarter results on Monday (January 20).

As per CNBC-TV18 poll, the bank is expected to give a good result based on healthy net interest income growth that will aid in profit growth of more than 30 percent.

The lender has one of the best net interest margins in the banking sector, thanks to low-cost deposit share at 54 percent. CNBC-TV18 expects the bank's net interest margin to remain steady or improve with loan growth seen at 15 percent or above.

The bank has been focusing on digital initiatives, which along with healthy retail loan growth should aid in fee income growth for the bank. Asset quality saw a bit of hiccup in the second quarter and gross non-performing assets (GNPA) below 2.4 percent will be positive.

CNBC-TV18 Poll suggests net interest income growth of 20.4 percent and profit growth of 32.5 percent. The key thing to watch will be subsidiaries performances as their performance has picked up since the last 2-3 quarters.

Kotak Mahindra Bank Q3FY20 Preview

CMP – Rs 1,694.2; MCAP – Rs 323767.54 crore. Valuations (Consol, P/BV): FY20 – 4.9x; FY21 – 4.2x. Consol BV (Rs/share): FY20E – Rs348.7; FY21E – Rs 405.8

52W L/H: Rs 1,198.7 (16/01/2019) / Rs 1,734.4 (19/12/2019).

Key things to watch out for

NIM to remain steady or improve QOQ (Q2 was at 4.61 percent, 18 quarter high).
Loan growth above 15 percent will be positive (Q2 was at 15.3 percent).
Fee income should remain strong due to loan growth and digital initiatives.
Low-cost deposit flow should be strong for the bank (Q2 casa ratio was at 53.6 percent).
GNPA below 2.4 percent will be positive (Q2 was at 2.32 percent).
DTA benefit may aid earnings momentum.

Q3FY20 – Standalone Poll – YOY

Net interest income seen at Rs 3,539.2 crore vs Rs 2,939.1 crore, up 20.4 percent (up 5.7 percent QOQ).
Net profit seen at Rs 1,710.5 crore vs Rs 1,290.9 crore, up 32.5 percent (down 0.8 percent QOQ).

Q3FY20 – Consolidated – Macquarie – YOY

Net interest income is seen at Rs 4,534.8 crore vs Rs 3,804.1 crore, up 19 percent.
Net profit is seen at Rs 2,373.1 crore vs Rs 1,822.8 crore, up 30 percent.

Asset quality – Dummy – QOQ

GNPA at Rs --- crore vs Rs 5033.6 crore.
NNPA at Rs --- cr vs Rs 1811.4 crore.
GNPA at ---% vs 2.32 percent.
NNPA at ---% vs 0.85 percent.
Calculated provision coverage ratio at ---% vs 64 percent.

All Standalone

	NII (Rs cr)	YoY (%)
Q3FY20E	3539	20.4
Q2FY20	3350	24.6
Q1FY20	3173	22.8
Q4FY19	3048	18.1
Q3FY19	2939	22.8

	PAT (Rs cr)	YoY (%)
Q3FY20E	1711	32.5
Q2FY20	1724	51.1
Q1FY20	1360	32.7
Q4FY19	1408	25.2
Q3FY19	1291	22.6

Highest NIM in 19 quarters	NIM (%)
Q3FY20E (Phillip Cap)	4.62
Q2FY20	4.61
Q1FY20	4.49
Q4FY19	4.48
Q3FY19	4.33

	GNPA (%)	NNPA (%)
Q3FY20E (Phillip Cap)	2.27	0.82
Q2FY20	2.32	0.85
Q1FY20	2.19	0.73
Q4FY19	2.14	0.75
Q3FY19	2.07	0.71

Kotak Mahindra Bank – Q2FY20 – Weakest business growth in 10 quarters; NIM at an all-time high.
Consolidated BV (Rs/share): FY20E – Rs 348.7; FY21E – Rs 405.8.

Key Highlights of the Results

Positives From The Results

Despite lower loan growth, NIM is at an all-time high of 4.61 percent.

NIM	%
Q2FY16	4.30
Q3FY16	4.34
Q4FY16	4.35
Q1FY17	4.40
Q2FY17	4.47
Q3FY17	4.49
Q4FY17	4.60
Q1FY18	4.50
Q2FY18	4.33
Q3FY18	4.20
Q4FY18	4.35
Q1FY19	4.30
Q2FY19	4.20
Q3FY19	4.33
Q4FY19	4.48
Q1FY20	4.49
Q2FY20	4.61

NIM was aided by control on cost of funds as low-cost deposit ratio has been the best in 17 quarters for the bank.
Low-cost deposits at Rs 111333 crore, up 16.8 percent YOY and down 6.1 percent QOQ.
Low-cost deposit share declines to 50.7 percent vs 50.3 percent YOY and vs 52.5 percent QOQ.

Low Cost Deposit Share	%
Q2FY16	36.2
Q3FY16	35.3
Q4FY16	38.1
Q1FY17	37.4
Q2FY17	39.0
Q3FY17	42.0
Q4FY17	44.0
Q1FY18	43.9
Q2FY18	47.8
Q3FY18	46.7
Q4FY18	50.8
Q1FY19	50.3
Q2FY19	50.8
Q3FY19	50.7
Q4FY19	52.5
Q1FY20	50.7
Q2FY20	53.6

NII growth is the best in 13 quarters along with lower tax rate drives PAT growth of >50 percent for the first time.

Growth, YOY, %	NII	PAT
Q2FY17	18.9	42.8
Q3FY17	16.1	38.6
Q4FY17	16.4	40.3
Q1FY18	17.0	23.0
Q2FY18	15.9	22.3
Q3FY18	16.7	19.7
Q4FY18	19.4	15.1
Q1FY19	15.0	12.3
Q2FY19	16.3	14.8
Q3FY19	22.8	22.6
Q4FY19	18.1	25.2
Q1FY20	22.8	17.6
Q2FY20	24.6	51.1

Operating efficiency is the best in 17quarters.

Cost to Income Ratio	%
Q2FY16	54.5
Q3FY16	51.6
Q4FY16	53.0
Q1FY17	50.4
Q2FY17	49.1
Q3FY17	48.4
Q4FY17	46.2
Q1FY18	49.4
Q2FY18	47.2
Q3FY18	47.0
Q4FY18	45.9
Q1FY19	45.8
Q2FY19	46.2
Q3FY19	50.3
Q4FY19	47.1
Q1FY20	46.4
Q2FY20	45.2

Operating profit growth is the best in 8 quarters.

Operating Profit Growth	YOY, %	QOQ, %
Q2FY18	19.8	8.1
Q3FY18	19.1	5.5
Q4FY18	18.6	10.9
Q1FY19	27.4	0.7
Q2FY19	21.5	3.1
Q3FY19	6.5	(7.5)
Q4FY19	13.1	17.7
Q1FY20	18.0	5.1
Q2FY20	19.7	5.5

Negatives From The Results

Business growth is the weakest in 10 quarters.
Deposit growth is the weakest in 13 quarters leading to loan growth being the lowest in 10 quarters.

Growth, YOY, %	Deposits	Advances
Q2FY17	14.5	12.9
Q3FY17	14.1	12.1
Q4FY17	13.5	14.7
Q1FY18	16.8	17.9
Q2FY18	17.5	21.1
Q3FY18	21.1	23.1
Q4FY18	22.4	24.7
Q1FY19	16.0	24.3
Q2FY19	24.2	21.2
Q3FY19	18.2	23.5
Q4FY19	17.3	21.2
Q1FY20	22.8	17.6
Q2FY20	13.2	15.3

The slowdown in loan growth was largely led by corporate loan growth.

Loan Growth (YOY, %)	Total Book	Corporate Book
Q2FY17	21.6	24.1
Q3FY17	12.1	23.6
Q4FY17	14.7	19.3
Q1FY18	17.9	21.0
Q2FY18	21.1	26.5
Q3FY18	23.1	17.3
Q4FY18	24.7	25.0
Q1FY19	24.3	25.3
Q2FY19	21.2	18.5
Q3FY19	23.5	26.0
Q4FY19	21.2	18.7
Q1FY20	17.6	7.4
Q2FY20	15.3	7.5

GNPA is the highest in the last two years.

Asset Quality (%)	GNPA Ratio	NNPA Ratio
Q2FY18	2.47	1.26
Q3FY18	2.31	1.09
Q4FY18	2.22	0.98
Q1FY19	2.17	0.86
Q2FY19	2.15	0.81
Q3FY19	2.07	0.71
Q4FY19	2.14	0.75
Q1FY20	2.19	0.73
Q2FY20	2.32	0.85

SMA 2 at Rs 431 crore vs Rs 332 crore, up 29.8 percent QOQ.
SMA 2 book increases to 0.2 percent vs 0.16 percent QOQ.
Provision coverage ratio at 64 percent vs 67 percent QOQ.

Other Highlights

Other income at Rs 1,224.4 crore, up 1.6 percent YOY and down 6.2 percent QOQ.
Core fee income at Rs 1,162 crore, up 14 percent YOY and one percent QOQ.
Capital adequacy ratio at 18.2 percent vs 17 percent YOY and vs 17.8 percent QOQ.
The tax rate at 17.9 percent vs 34.4 percent YOY and 34.7 percent QOQ.

Q2FY20 – YOY

NII at Rs 3,349.6 crore vs Rs 2,689.1 crore, up 24.6 percent (Poll at Rs 3,241.6 crore).
Net profit at Rs 1,724.5 crore vs Rs 1,141.7 crore, up 51 percent (Poll at Rs 1,555.2 crore).

Asset quality deteriorates – QOQ

GNPA at Rs 5,033.6 crore vs Rs 4,613.5 crore.
NNPA at Rs 1,811.4 crore vs Rs 1,524.4 crore.
GNPA at 2.32 percent vs 2.19 percent.
NNPA at 0.85 percent vs 0.73 percent.
Calculated provision coverage ratio at 64 percent vs 67 percent.

Kotak Mahindra Bank to announce Q3 earnings on January 20; here is what to expect

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