About the Company

Kotak Mahindra Bank is an Indian private sector bank headquartered in Mumbai, Maharashtra, India. It offers banking products and financial services for corporate and retail customers in the areas of personal finance, investment banking, life insurance, and wealth management. As of April 2019, it is the second-largest Indian private sector bank by market capitalization.

Q2FY21 Updates

Financial Results & Highlights

 

Standalone Financials (In Crs)
  Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 8288 7986 3.78% 7685 7.85% 15973 15931 0.26%
PBT 2929 2101 39.41% 1662 76.23% 4591 4183 9.75%
PAT 2184 1724 26.68% 1244 75.56% 3429 3085 11.15%

Consolidated Financials (In Crs)
  Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 13591 12543 8.36% 12323 10.29% 25915 24673 5.03%
PBT 3914 2945 32.90% 2435 60.74% 6350 5858 8.40%
PAT 2933 2399 22.26% 1840 59.40% 4774 4326 10.36%

Detailed Results

  1. The net standalone revenues rose 4% YoY in Q2. Consolidated revenue was up at an 8.4% gain YoY in Q2.
  2. Consolidated profit rose 22% YoY in Q2 Standalone Preprovision profit rose 31% YoY in Q2.
  3. On a standalone basis, NII grew 16.8% YoY. NIM was at 4.52% vs 4.61% a year ago.
  4. Standalone CASA was at 57.1% vs 53.6% a year ago.
  5. Avg Savings deposits rose 25.7% YoY to Rs 1,08,990 Cr. Avg current deposits rose 6% YoY to Rs 40,454 Cr.
  6. Advances fell slightly YoY at Rs 204,845 Cr vs Rs 213,299 Cr.
  7. Standalone CAR was at 23.4% with Tier I ratio at 22.8%.
  8. Standalone GNPA was at 2.55% and NNPA was at 0.64%. Proforma GNPA: 2.70%; NNPA: 0.74.
  9. COVID-19 provisioning as of 30th Sep 2020 was at Rs 1279 Cr.
  10. Standalone total assets grew 18% YoY to Rs 3,74,765 Cr.
  11. Average SA size rose 32% YoY while the average CA size rose 10% YoY. Cost SA was down 150 bps YpY to 3.87%. LCR was >170%.
  12. Consolidated CAR was at 24.5% with tier 1 capital at 23.9%.
  13. Consolidated NIM was flat YoY at 4.58% vs 4.56% last year.
  14. The book value per share was at Rs 399 per share.
  15. Overall NNPA for consolidated was at 0.7%
  16. AUM of Kotak Mahindra Life Insurance grew 18.5% YoY to Rs 35,980 Cr.
  17. Kotak securities saw market share shrink to 7.7% in H1 vs 9.4% last year.
  18. Kotak AMC saw market share rise to 6.9% vs 6.6% a year ago.

Investor Conference Call Highlights

  1. The total provisioning on the credit count is now 177% of our total net NPS.
  2. The bank has moved to the lower tax rate from Q2 onwards.
  3. The distribution and syndication income showed a growth of 50% on a Y-o-Y basis and 19% on a QoQ basis.
  4. General banking fees were down 15% YoY due to lower volumes in various segments.
  5. The bank continues to see a surge in customers’ usage of digital channels with a preference for mobile in Q2.
  6. In mobile banking, Kotak has a 5.1% share of the mobile transaction value in the industry.
  7. Digital payments saw an increase of 73% YoY and the average ticket size in both UPI and payment gateway transactions has increased Y-o-Y.
  8. The bank launched 2 new credit card variants between September and October for the mass affluent segment and a secure credit card for customers who do not have a stable footprint.
  9. Collections are coming back to normal and were aided with the increased means through digital transactions.
  10. The bank also launched MyImage Card for customers who can apply for and download the images on their debit and credit cards.
  11. The bank’s agribusiness portfolio comprises SMEs involved in primary and secondary processing of agricultural commodities and is mostly based out of non-urban locations. This business has seen good growth due to good crop harvest and collections have been above normal levels.
  12. The bank overall contributed 74% of the post-tax profits.
  13. In the life insurance business, the gross written premium for the second quarter grew by 10% YoY and the single premium business grew by 15% YoY. The individual APE new business payments for the first half grew by 2% Y-o-Y against the private industry de-growth of 11%.
  14. Digitization has been a big focus area for life insurance for increasing efficiency and enhancing customer experiences.
  15. The broking industry saw record volumes for average cash turnover in Q2 at Rs 62,000 Cr per day vs Rs 35,000 Cr a year ago.
  16. The daily options market turnover for retail broking has also risen 40-50% YoY.
  17. Kotak Mahindra Capital Company saw many marquee transactions like QIPs for ICICI, HDFC, Mahindra Finance, and YES BANK, Phoenix Mills, IPOs for CAMS, etc.
  18. The company has also been contracted for the restructuring of Motherson Sumi and subsidization of Tata Motor’s passenger vehicle business.
  19. The management states that the deposit rate cut was not for short-term financial gains but as part of a larger strategy for sustainable growth of earnings of the firm while preserving the deposit franchise.
  20. The management has stated that consumer behaviour has not been affected too much by the rate cut and the attrition rate has been normal.
  21. The management is confident about the asset quality of the company. It is looking to concentrate on urban advances as employees with lower salaries in urban areas have been the worst-hit financially from COVID-19. Thus the company has also dropped its unsecured credit card book and unsecured personal loan and business loan book by design.
  22. The company will continue to spend money on building the franchise (mostly on digital) and taking cost on risk.
  23. Kotak is currently at 2% to 2.5% of the total banking sector market share.
  24. Emphasis on digital and tech has been the primary driver for the bank in expanding the customer base without significantly expanding the branch network.
  25. The management maintains that the primary focus for the bank is on execution and to approach growth through the route of customer acquisition and engagement and selling.
  26. In commercial vehicle and construction equipment, Sep collections are close to the pre-covid level.
  27. In the unsecured retail business, collections are improving but they are far from the pre-covid level.
  28. Overall collections for the bank are at Feb levels near 95%.

Analyst’s View

Kotak Mahindra Bank is the second-biggest private bank in the country by market capitalization. It has deservedly earned its stellar reputation over the years. The bank has performed resiliently in Q2FY21 with more than 32% growth in savings deposits and has gotten 17% YoY growth in NII despite slightly lower advances. The company has done well to keep its books resilient and focus on the development of the liability side during the pandemic. It has also seen a very good rise in the digital channels with more than 73% YoY rise in digital transactions and plans to use this consumer shift to better compete with peers who have a much larger physical presence. It remains to be seen how the COVID-19 situation will unravel and what final impact will the end of the moratorium unravel for the company. Nonetheless, given the bank’s track record and the capability and vision of the management over the years, Kotak Mahindra Bank remains a pivotal banking stock for every Indian investor.


Q1FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 7685 7945 -3.27% 8294 -7.34%
PBT 1662 2082 -20.17% 1675 -0.78%
PAT 1244 1360 -8.53% 1267 -1.82%

 

Consolidated Financials (In Crs)
Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 12323 12130 1.59% 12085 1.97%
PBT 2435* 2913 -16.41% 2674** -8.94%
PAT 1840 1927 -4.51% 1952 -5.74%

*Contains Provision of Rs 1119 Cr. **Contains provision of Rs 1262 Cr.

Detailed Results

    1. The net standalone revenues fell 3% YoY in Q1. Consolidated revenue was flat at 1.6% gain YoY in Q1.
    2. Consolidated profit fell 4.5% YoY in Q1.
    3. On a standalone basis, NII grew 17.8% YoY. NIM was at 4.4% vs 4.48% a year ago.
    4. Standalone CASA was at 56.7% vs 50.7% a year ago.
    5. Avg Savings deposits rose 34% YoY to Rs 1,05,673 Cr. Avg current deposits rose 10% YoY to Rs 36,066 Cr.
    6. Advances were flat YoY at Rs 203,998 Cr vs Rs 208,030 Cr.
    7. Standalone CAR was at 21.2% with Tier I ratio at 20.6%.
    8. Standalone GNPA was at 2.7% and NNPA was at 0.87%.
    9. Disbursals till June was at Rs 550 Cr while disbursals till July 23rd was at Rs 4000 Cr all under the MSME scheme.
    10. COVID-19 provisioning as of 30th June 2020 was at Rs 1266 Cr.
    11. The bank raised Rs 7442 Cr through QIP and maintains LCR of >150%.
    12. The company maintained a consolidated CAR of 23% vs 18.4% a year ago.
    13. The book value per share was at Rs 383.8 per share.
    14. AUM of Kotak Mahindra Life Insurance grew 17.4% YoY to Rs 34223 Cr.
    15. The company has an overall cash surplus of Rs 76,443 Cr out of which Rs 59,543 Cr is in Kotak Mahindra Bank.
    16. Kotak securities saw market share shrink to 7.6% vs 10% last year.
    17. Kotak AMC saw market share rise to 6.8% vs 6.3% a year ago.

Investor Conference Call Highlights

  1. Around 9.65% of the loan book is under moratorium 2.0. Around 80% of these loans are secured.
  2. The fees and services income declined by 33% YoY in Q1.
  3. Other banking-related fees fell 40% YoY due to lower volumes from COVID-19.
  4. Employee costs went down 6% due to senior management taking pay cuts.
  5. On average, around 94% to 95% of branches remained open right through the quarter.
  6. The cost of savings account is at 4.22% vs 5.51% last year.
  7. Kotak was the first bank to launch a zero contact video KYC digital savings account.
  8. For disbursement of the MSME loan, Kotak developed a completely end-to-end paperless digital documentation called e-Sign.
  9. Slippages for Q1 was at Rs 796 Cr.
  10. Since the start of the year, 97% of recurring deposits & 87% of fixed deposits have come from digital channels.
  11. In the life insurance subsidiary, new business premium in individual APE grew by 8% YoY vs industry decline of 18% YoY. The overall premium went down to Rs 1207 Cr from Rs 1640 Cr due to the extension of the grace period in lockdown. PAT for the entity grew 20.7% YoY. 95% of policies were sold through Genie and Banca channels
  12. In Kotak securities, the average daily volume for retail businesses grew to Rs 59,000 Cr from Rs 36,000 Cr last year. Demat accounts have risen to 4.31 Cr from 3.67 Cr a year ago. Kotak Securities’ mobile trading app has seen a greater than 2x jump in mobile trading volumes in this period.
  13. In Kotak AMC, Q1 Average AUM fell 10% QoQ primarily driven by mark-to-market changes.
  14. The asset management business remains the first and only signatory to the United Nations Principles of Responsible Investment in India.
  15. The management sees a huge opportunity in the markets related and distribution-related businesses at this point in time, with the advent of technology to drive market share and get a disproportionately higher share of fee and franchise incomes.
  16. At the wholesale bank-level, the moratorium 2.0 is at less than 5% for real estate loans. The management remains cautious in this segment and has moved the portfolio to higher-rated developers and larger developers.
  17. The management remains confident that the portfolio is well guarded for the bank and it should require minimal restructuring.
  18. From a risk perspective, the bank has focussed in various segments like MSME loans which are under the sovereign guarantee, and in special situations fund where the company has put in about 15% to 20% of its capital alongside fund investors. In the consumer space, the focus remains on secured retail.
  19. On the bank side, the company’s primary focus remains the cost of funds and customer franchises. The management believes that there is still room for the cost of funds in savings to go down further from current levels. This was the driver for NII growth despite flat YoY growth in advances.
  20. The management maintains that mortgages remain a big market for the company.
  21. Pre-COVID, the channel split for operations was at 80:20 for physical to digital. This has now turned to 10:90 for the company. The management believes that in the long term equilibrium will come to 50:50.
  22. The management remains confident that due to the shift towards digital, it will be able to compete better with banks that have far more branches that Kotak’s 1600 branches.

Analyst’s View

Kotak Mahindra Bank is the second-biggest private bank in the country by market capitalization. It has deservedly earned its stellar reputation over the years. The bank has performed resiliently in Q1FY21 with more than 34% growth in savings deposits and has gotten 18% YoY growth in NII despite flat advances. The company has done well to keep its books resilient with more than 80% of loans under moratorium 2.0 being secured. It has also seen a very good rise in the digital channels and plans to use this consumer shift to better compete with peers who have a much larger physical presence. It remains to be seen how the COVID-19 situation will unravel and what final impact will the end of the moratorium unravel for the company. Nonetheless, given the bank’s track record and the capability and vision of the management over the years, Kotak Mahindra Bank remains a pivotal banking stock for every Indian investor.


 

 

Q4 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 8294.07 7672.56 8.10% 8077.03 2.69% 32301.72 28547.24 13.15%
PBT 1677.81 2111 -20.52% 1944.07 -13.70% 7804.67 7385.79 5.67%
PAT 1266.6* 1407.8 -10.03% 1595.9 -20.63% 5947.18 4865.33 22.24%
Consolidated Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 12084.71 13823.33 -12.58% 13542.43 -10.76% 50299.69 45903.36 9.58%
PBT 2674.46 2990.59 -10.57% 2889.47 -7.44% 11421.8 10575.72 8.00%
PAT 1951.82** 2038.22 -4.24% 2329.33 -16.21% 8607.08 7119.7 20.89%

*Contains Provision of Rs 1047 Cr. **Contains provision of Rs 1262 Cr.

Detailed Results

    1. The net standalone revenues rose 8% YoY in Q4.
    2. Consolidated profit fell 12.5% YoY in Q4.
    3. On the other hand, FY20 saw revenue growth of 13% YoY and 22% YoY in standalone terms. Consolidated revenues and profits grew 9.6% YoY and 21 % YoY respectively.
    4. The consolidated net interest margin was 4.59% vs 4.24% a year ago.
    5. Total advances grew 2.6% YoY while AUM was flat YoY.
    6. The company maintained a consolidated CAR of 19.8% vs 17.9% a year ago.
    7. Book value per share was at Rs 348.3 per share.
    8. Total assets grew 12% YoY.
    9. The company has an overall cash surplus of Rs 67,314 Cr out of which Rs 49,015 Cr are in Kotak Mahindra Bank.
    10. At a standalone level, GNPAs was at 2.25% while net NPAs were at 0.71% on 31st March 2020.
    11. Advances for standalone entity grew 6.8% YoY.
    12. The CASA ratio was at 56.2% vs 52.5% a year ago.
    13. The savings deposit base grew 31% YoY to over Rs 1 lakh crore. The average SA size also grew 21% YoY to Rs 85,656.
    14. The current account base also grew 10.5% YoY to Rs 43,013 Cr. The average CA size also grew 17% YoY to Rs 33,699.
    15. Costs of SA was at 5.23% vs 5.66% a year ago.
    16. Total deposits including CDs grew 16% YoY to Rs 2,62,821 Cr.
    17. ~44 lakh 811 accounts opened in FY20.
    18. The bank maintained PCR of 69% in FY20.
    19. The bank has made COVID provisioning of Rs 650 Cr. It is at 10% at account level.
    20. In Kotak Mahindra Life Insurance, VNB margin was at 28.8%. The individual new business mix was as follows:
      1. Participating products: 5%
      2. Non-participating products: 39%
      3. ULIP: 5%
    21. Claims settlement ratio was at 99.2%. The mix of new business channel was 44% for bancassurance and 56% for agency & others.
    22. Gross written premium rose 26.6% YoY while gross individual premium grew 20.8% YoY.
    23. Group premium grew 43.3% YoY. Policyholders’ AUM grew 14.6% YoY.
    24. Solvency ratio was at 2.9 times.
    25. In Kotak Mahindra AMC, overall average AUM grew 25% YoY to Rs 1,73,394 Cr. Equity AUM grew 31% YoY and now constitutes 41.6% of total AUM.
    26. Market share of the subsidiary grew to 6.9% (from 6.1%) and 6.1% (from 5.2%) in overall and equity terms respectively.
    27. Kotak securities has a modest year with market share maintained at 9.1%.

Investor Conference Call Highlights

  1. The management has stated that the company is looking at lending based on 3 aspects which are sector, whether the company has high fixed costs and whether the company has high leverage.
  2. The company added an average of 14,000 new customer accounts per day through its digital acquisition channel since the start of FY21.
  3. The management sees a good opportunity to grow the non-credit risk business areas for the bank including advisory, securities, wealth management and asset management.
  4. The other income for the bank grew 17% YoY to Rs 1489 Cr in standalone terms.
  5. Around 26% of borrowers went for the Moratorium in April.
  6. The bank has made significant efforts in online customer acquisition. It has extended 811 accounts into all channels including corporate salary, branches and others. The bank is also the first in India with Google Assistant integration where bank customers can ask for balances via Google Assistant.
  7. The breakdown of the bank’s lending divisions is as follows:
    1. Corporate & Business banking: Rs 84,855 Cr
    2. Commercial Vehicles/Construction Vehicles: Rs 19,253 Cr
    3. Agriculture: Rs 21,188 Cr
    4. Tractor Finance: Rs 7,569 Cr
    5. Home Loans: Rs 46,881 Cr
    6. Secured Working Capital: Rs 19,839 Cr
    7. PL, BL & Consumer Durables: Rs 9,754 Cr
    8. Credit Cards: Rs 4,701 Cr
    9. Others: Rs 5,708 Cr
  8. In Corporate & Business Banking division, SME lending is around Rs 21,000 Cr. In the commercial vehicle/construction vehicles division, SME lending is at Rs 19,000 Cr. In the secured working capital division, almost all of the loans are in SMEs.
  9. The management has stated that the bank shall remain cautious in lending without sovereign guarantee and it will step up on lending if sovereign guarantee is applied.
  10. Savings growth in April and May so far has been positive YoY for the bank.
  11. Despite dropping the savings rate twice in the recent past, the current rates are still greater than industry average which shows that there is good room for reduction in cost of savings accounts for the bank according to the management.
  12. The bank shall remain aggressive in assessing lending targets and will be assessing them mainly on future potential rather than past track record since COVID-19 may have caused many irreversible changes in particular sectors.
  13. The factors affecting VNB margin were the drop in interest rates, increase in expenses, change in channel mix and change in product mix.
  14. The total exposure to real estate for the bank on standalone terms is around Rs 6,000 Cr while total exposure on consolidated terms is Rs 10,000 Cr.
  15. The management has stated that the company is not targeting any particular spread or band of margin and is basically looking to operate at the optimal balance of risk to return.
  16. The management has stated that the entire senior management of the company has opted for a voluntary 15% cut in salaries for the coming year.
  17. The management expects the demand for office space to go down especially for the bank due to the coming into prevalence of working from home.
  18. The management also believes that there will a significant increase in digital journeys for all processes and functions in the future. Thus spending on digital and technology is going to go up.
  19. The management also expects business models to become more adaptive flexible to be able to respond better to unforeseen changes in the world as in the case of COVID-19.
  20. The management admits that the unsecured channel is the area with most worry right now.
  21. The management has observed that the barriers to entry into banking and financial services have essentially reduced in the past decade and more and more SFBs and more NBFCs have come up which has resulted in various execution issues and lots of differences in underwriting standards. Although the entry has been eased for players in the industry, exit still remains unclear. Thus the only visible exits are either a bank ceases to exist or gets acquired or consolidated with another player in the future.
  22. The management admits that the average balance for 811 accounts is very small. The major draw for the bank here is to migrate the 811 account to full KYC account and convert the person to a regular customer.
  23. The management has stated that the bank will continue to take term deposits but will focus on smaller tickets. The preferred strategy is to have TDs of up to Rs 1 Cr only here.
  24. The management expects the entire unsecured segment including credit cards and unsecured loans to be in pain going forward. In secured loans, the management expects CV/CE segment to be in the most pain going forward.
  25. In the home loan segment, the bank had been very aggressive in the past year and was focusing primarily on existing bank customers through the bank branches. The focus was particularly around large cities like Mumbai, Delhi, Bangalore, Ahmedabad, Pune, etc.
  26. The management credit costs to be higher than at present going forward.
  27. The management believe that going forward as risk becomes more concentrated due to industry consolidation, banking industry will have to get more responsible in terms of lending covenants and fiduciary responsibility of ratings agencies will be required to higher than before.
  28. The management has stated that the bank will look at various productivity measures to assess cist saving avenues while continuing to invest in recovery infrastructure for retail since retail figures tend to shoot up in step fashion on recovery.

Analyst’s View

Kotak Mahindra Bank is the second-biggest private bank in the country by market capitalization. It has deservedly earned its stellar reputation over the years. The bank has performed very well in FY20 with more than 31% growth in deposits despite instituting two savings rate cuts in the year. The company has also managed to achieve savings deposit growth in April and May despite instituting the latest savings rate cut in April itself. It is a testament to the vision of the management that even in such trying times of COVID-19, the aim of the bank is to better its underwriting processes looking at future potential, institute cost savings and focus on digital and technology to stay agile and take advantage of upcoming opportunities in the banking space. It remains to be seen how the COVID-19 situation will unravel and what final impact it will have on the company’s performance and the performance of the vulnerable but essential MSME sector. Nonetheless, given the bank’s track record and the capability and vision of the management over the years, Kotak Mahindra Bank remains a pivotal banking stock for every Indian investor.

 

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