Share Market: Kotak Mahindra Bank jumps by 2.50% on Dalal Street - Earns BUY rating from stock experts
The bank posted a 25% rise in net profit to Rs 1,408 crore in Q4FY19, as against Rs 1,124 crore in Q4FY18.
The share price of Kotak Mahindra Bank jumped as much as 2.50% on Sensex, after touching an intraday high of Rs 1,421.75 per piece. However, the stock ended at Rs 1,407.70 per piece up by Rs 20.65 or 1.49% on the same index. Upbeat sentiments were due to positive growth recorded by the bank during Q4FY19. The bank posted 25% rise in net profit to Rs 1,408 crore in Q4FY19, as against Rs 1,124 crore in Q4FY18. Meanwhile, standalone net interest income (NII) increased to Rs 3,048 crore in Q4FY19 versus Rs 2,580 crore in Q4FY18. Net Interest Margin stood at 4.48% in the latest quarter. As on March 2019, Kotak's gross NPA came in at Rs 4,468 crore higher from Rs 3,825 crore in Q4FY18 and Rs 4,129 crore in Q3FY19. In percentage terms, GNPA was at 2.14% stable from 2.22% in Q4FY18, however, up from 2.07% recorded in Q3FY19. Experts are optimistic about Kotak shares with the majority giving a buy rating. The highest target price for Kotak is seen to be Rs 1,638 per piece in future.
Here’s what analysts have said:
Kotak Mahindra Bank (KMB) reported 4QFY19 results with the key takeaways being: (1) Life Insurance subsidiary has been a standout performer with VNB margin at an industry high 36% (2) Despite significant continued caution on business banking and auto loans, KMB was able to grow loan book at 19% YoY (3) Consolidated NIM expanded 20 bps QoQ on the back of a return of pricing power and strong traction for granular liabilities (4) Asset quality remained well under control with underlying credit costs well below 50 bps guided for earlier. Opex to also trend lower prospectively. Per se, on the key P&L Items, KMB posted NII growth of 18% YoY at Rs40,010mn, PPOP growth of 11% YoY at Rs31,882mn and PAT growth of 18% YoY at Rs20,383mn. We have revised our estimates for FY20/FY21 and have retained a Buy rating on KMB with a revised target price of Rs1,638 (from Rs1,561 earlier) and valuing the stock at 4.0x FY21E P/BV.
Despite a challenging environment on the liabilities front, KMB has managed to improve its CASA share with most of the growth coming from the granular sources. Given its conservative lending and healthy performance across the asset quality cycle, KMB will continue to be one of the preferred plays amidst a not-so-benign operating environment for banks. Clarity on dilution in promoters’ holding is awaited, which could be a near-term overhang for the stock. At CMP, the stock trades at 4.9x FY21E. Maintain our BUY recommendation on the stock with SOTP-based revised Target Price of Rs1,550 (from Rs1,500 earlier) based on 4x FY21E adjusted PBV and the value of its subsidiaries, implying a FY21 P/ABV of 5.5x.
KMB’s Q4FY19 performance reinforces our view that its earnings momentum will sustain in spite of the challenging environment. Key highlights: a) Sustained loan growth of >21% YoY (though lower than what we would have liked). b) Improving NIM profile supported 20%-plus YoY operating profit growth. c) CASA growth of 20%-plus is commendable (contrary to softening trend in peers) and suggests preparedness for growth. Given KMB’s: a) best-in-class liability franchise (CASA ratio of >52%); b) marginal stress baggage—GNPL at 2.14%; and c) strong capitalisation (tier-1 ~17%), a strong foundation is in place to capture emerging growth opportunities. Moreover, non-banking subsidiaries’ performance is stronger than expected. Key variables: the roadmap for reduction in promoter shareholding (court hearing deferred to January 2020). Maintain ‘BUY’ with a revised SoTP of INR1,576 (INR1,446 earlier, rolling over by one more quarter).