KotakMahindraBank

KotaksQ2FY15consolidatedPATofRs7.2bnwasaheadofexpectationsonbetter
lendingbusinessprofitability.Loangrowthwasrobustonbetterdemandfromboth
retail as well as wholesale assets. CASA profile was robust as Bank adds new
branches and increased product push. Kotak has capitalized well on its capital
marketopportunities(MFs,insurance&securities)andisnowstimulatingbackits
lending business on growth path. Improving prospects and assetliability getting
more granular from increasing footprint and penetration through products,
earningswillberobustgoingahead.WeupgradetoAccumulatewithTPofRs1085.

October22,2014
PriteshBumb
priteshbumb@plindia.com
+912266322232

Rating
Price
TargetPrice
ImpliedUpside
Sensex
Nifty

787.4
740.7
2063

Lending business shows robust growth: Lending business performance was

commendableas(1)Marginsremainedstableat5%onlowercostoffundsfrom
healthyaccretioninCASAwhichalsocushionedyielddropof45bpsQoQ(2)CA
balances saw robust growth after remaining volatile for last few quarters as
growthwasmainlyfromnewerproductintroductionstoretailtraders,whichwe
believeisthestickypartthancorporateCA.(3)Corefeeincomesawveryrobust
growthof~51%YoYmainlyfromthirdpartydistributionfeesespeciallyMFs&
insurancebizandsomefeesfromincreasedcorporatelending(4)Opexgrowth
increased to 25% YoY as the bank builds higher capacity in terms of branches
and staff and is now growing incremental branches in Metro & Urban areas.
Management said capacity build up necessary to push further product
distributionwhichwillaugurwellinmediumtermforgrowth.

40.07%
34.61%
2.01%
23.31%

AssetqualityLargelystable:KotaksassetqualitywaslargelystableinQ2FY15
withnetslippagesadditionsofRs942mnwhichwasslightlyhighersequentially.
Creditcostswereslightlyhigherwhichweremainlyfromhigherstandardasset
provisioningonhigherloangrowth.

Subsidiaries doing reasonably well; credit cycle flattening: Capital market biz
profitability at Rs1.0bn was reasonable while insurance business has shown
some promising growth. Loan growth pickup in Q2FY15 for the Bank and
management comments on credit cycle with prospects of improvement will
certainly help profitability. Retail products have already picked up especially
autoloans(alsoCV/CE)whichhelphigherRORWAs.

Accumulate
Rs1,063
Rs1,085
2.1%
26,787
7,996

(PricesasonOctober22,2014)
Tradingdata
MarketCap.(Rsbn)
Shareso/s(m)
3MAvg.Dailyvalue(Rsm)
Majorshareholders
Promoters
Foreign
DomesticInst.
Public&Other
StockPerformance
(%)
1M
6M
Absolute
1.8
32.7
Relative
3.4
15.0
HowwedifferfromConsensus
EPS(Rs)
PL
Cons.
2015
33.9
39.2
2016
40.6
48.1

12M
49.9
21.5
%Diff.
13.6
15.6

PricePerformance(RIC:KTKM.BO,BB:KMBIN)
(Rs)
1,200

Keyfinancials(Y/eMarch)
Netinterestincome(Rsm)
Growth(%)
Operatingprofit(Rsm)
PAT(Rsm)
EPS(Rs)
Growth(%)
NetDPS(Rs)

2013
41,689
21.4
31,565
19,909
26.7
14.8
0.7

2014
48,382
16.1
37,669
22,859
29.0
8.9
0.8

2015E
53,276
10.1
42,472
26,663
33.9
16.6
0.9

2016E
62,980
18.2
50,590
31,982
40.6
19.9
1.1

2013
4.45
14.4
2.13
5.3
5.4
39.9
0.1

2014
4.50
13.7
2.13
4.5
4.6
36.6
0.1

2015E
4.49
13.6
2.25
4.1
4.1
31.4
0.1

2016E
4.47
14.4
2.27
3.5
3.6
26.2
0.1

Profitability&Valuation
NIM(%)
RoAE(%)
RoAA(%)
P/BV(x)
P/ABV(x)
PE(x)
Netdividendyield(%)

1,000
800
600
400
200
Oct14

Aug14

Jun14

Apr14

Feb14

Dec13

Oct13

Source:Bloomberg

Source:CompanyData;PLResearch

PrabhudasLilladherPvt.Ltd.and/oritsassociates(the'Firm')doesand/orseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresultinvestorsshouldbeawarethat
theFirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthereport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.

Pleaserefertoimportantdisclosuresanddisclaimersattheendofthereport

Q2FY15ResultUpdate

Healthyperformance,butlimitedupside

KotakMahindraBank

KeyQ2FY15Concallhighlights:
Balancesheet:

Loan growth of 20% YoY in FY15 can be achievable as economic activity is

graduallypickingup.

GainingmarketshareespeciallyfromPSUBanks(largeintheindustry)

Gaining more share and higher growth in Wholesale banking book. These are
mostlyacquiredfromPSUBanksandarealsosizeableforKMB.

Corporate book includes Midmarket business which shall move with faster
growth.

Recent equity investments (MCX investment) are for pure investment but not
aligningwithexistingrelatedbusinesses.

CASAIntroducednewproductshavebeencontributingtocurrenta/candare
not specific to capital market floats. Current a/c proportion largely towards
retailthancorporate/wholesale.

LoangrowthCarloangrowthlookingbetter,onCV/CEisslowbydesignand
nowstartdisbursinginCV/CEbutisseeinggrowthonlyinM&HCVandLCVwill
have slower growth. Agri business will do well as increasing footprint in rural
areas.

Disbursementsgrowthwas25%YoYandalsohigherthanQ1FY15.

Creditcycleflatteningoutthoughstillpickupstillhastobeseen.

Margins:

Seeingsomemarginpressureincertainproducts

Avgyieldsslightlylowerby25bpsonsomeshiftfromretailassets

Fees:

Significantdeltacomingfromdistributionfees.MFfeesalonewereRs520mnv/s
Rs160mn in Q2FY14. KMB is among top 3 distributors of MFs in India. Also
decentgrowthfrominsurancebusiness

ARD business should be monetized over next few quarters which will be
significant.

Opex&capacitybuilding:

Costwillbecutontacticalbasisbutwouldnotcompromiseoncapacitybuilding

Still keeping target of 1000 branches by 2016, which will have current mix of
metrourban&semiurban&ruralbranches.

Assetquality:

HoldingRs1820bnfloatingprovisions

No big accounts on restructured which sequentially inched up marginally but

remainsat0.3%ofloans.

October22,2014

KotakMahindraBank

Exhibit1: Q2FY15PPOPgrowthmoderationcontinues
NIMremainedstableQoQbutNIIgrowth

StandaloneBank

2Q14

1Q15

2Q15

YoY

QoQ

NII

9,241

10,022

10,389

12.4%

3.7%

2,971

3,998

4,665

57.0%

16.7%

12,212

14,020

15,054

23.3%

7.4%

Employeeexpense

2,647

3,484

3,545

34.0%

1.8%

Otherexpense

3,501

3,880

4,172

19.2%

7.5%

Operatingexpense

6,147

7,364

7,717

25.5%

4.8%

especiallyinMFsandLifeinsurancebiz.

PPOP

6,065

6,655

7,336

21.0%

10.2%

Butoverallotherfeestreamsalsohave

Provisions

723

140

537

25.8%

283.5%

PBT

5,343

6,515

6,800

27.3%

4.4%

Tax

1,817

2,217

2,355

29.6%

6.2%

PAT

3,525

4,298

4,445

26.1%

3.4%

StandaloneBank

3,530

4,298

4,445

26%

3%

KotakPrime

1,250

1,200

1,250

0%

4%

KMCC

20

40

70

100%

75%

KotakSecurities

400

680

660

65%

3%

10

70

130

1200%

86%

170

10

106%

NA

wasledbyhighadvancesgrowthfrom
bothretailandwholesale.
Feesgrowthwasrobustmainlycontributed
bythirdpartydistributionsproducts

contributedtofeeincomegrowth
Opexgrowthof25%washigheras
capacitybuildinghasbeentakingplace
andasmgmtindicatedwouldnotcurtail
oncapacitybuilding

Otherincome
TotalRevenues

ConsolidatedPAT

Internationalsubsidiaries
KotakAMC
KotakPrimereportedstableprofitability

KotakInvestmentAdvisors

butcapitalmarketbusinesscontinueto

KotakMahindraInvestments

well.Alsoasthirdpartydistributionhas

Lendingbusiness

donewellinthesector,sothebenefit
shouldalsoflowintherelatedsubsidiaries
alsogoingahead.

Flowbusiness,Subsidiaries
ConsolidatedPAT(exinsurance)
Insurance
ConsolidatedPAT

40

80

40

0%

50%

110

170

250

127%

47%

4,780

5,498

5,695

19%

4%

710

960

1,000

41%

4%

5,490

6,458

6,695

22%

4%

440

490

520

18%

6%

5,930

6,948

7,215

22%

4%

Source:CompanyData,PLResearch
LendingPATgrowthwasrobustasBank
witnessedexcellentgrowthinadvances
whichledtobetterNIIgrowth.

Exhibit2: LendingbusinessPATnowcominginsyncwithConsolidatedPAT

60.0%

LendingBusinessPAT%YoY

ConsolidatedPAT%YoY

50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
2Q15

1Q15

4Q14

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

2Q11

10.0%

Source:CompanyData,PLResearch

October22,2014

3.50%

2,000

3.00%

Source:CompanyData,PLResearch

2Q15

4,000

1Q15

4.00%

4Q14

6,000

3Q14

4.50%

2Q14

8,000

1Q14

5.00%

4Q13

10,000

3Q13

5.50%

4Q12

12,000

2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15

6.00%

2Q13

Exhibit4: SAaccretionremainsstrongandwithhighgranularity

1Q13

Exhibit3: Strongmarginperformance,highestinlast12quarters

KotakMahindraBank

Source:CompanyData,PLResearch
Exhibit5: Corporateloanbookshowedrobustgrowthbutretailwashealthyaswell
Assetquality
GrossNPAs

2Q14

1Q15

2Q15

YoY

QoQ

11,181

12,113

13,054

16.8%

7.8%

NetNPAs

5,474

6,270

6,809

24.4%

8.6%

Coverage

51.0%

48.2%

47.8%

3.2%

0.4%

450

1,450

1,615

258.9%

11.4%

4.88%

5.18%

5.05%

0.17%

0.13%

CVloans

67,810

51,040

50,620

25.4%

0.8%

Carloans

130,940

133,630

138,930

6.1%

4.0%

41,310

47,670

53,440

29.4%

12.1%

Homeloans

113,070

123,120

128,940

14.0%

4.7%

Corporate+SME

RestructuredBook
NIMs
Loanbookgrowth

Personalloans

225,530

273,380

305,000

35.2%

11.6%

Agriculture

79,100

99,410

101,370

28.2%

2.0%

Others

24,500

30,870

35,880

46.4%

16.2%

682,260

759,120

814,180

19.3%

7.3%

TotalLoanbook
Source:CompanyData,PLResearch
Exhibit6: Creditcostincreasedonstandardassetprovisions

Exhibit7: GNPAsgraduallycomingdownwhileNNPAsremainstable

1.60%
1.40%
1.20%
1.00%
0.80%
0.60%
0.40%
0.20%
0.00%
0.20%

Source:CompanyData,PLResearch

GrossNPAs%

NetNPAs%(RHS)

1.00

2.00

0.80

1.50

0.60

1.00

0.40

0.50

0.20

2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15

2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15

2.50

Source:CompanyData,PLResearch

October22,2014

KotakMahindraBank

Exhibit8: Capitalmarketsubscontinuetodowell,insurancebizalsoshowsgoodgrowth
KMCC
KotakInv. Advosors

KotakSec
KotakInvestments

Int.Subs.
Others

AMC

(Rsm)

900

400

2Q15

1Q15

4Q14

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

2Q11

(100)

Source:CompanyData,PLResearch
Exhibit9: Q2FY15Subsidiaryperformancebreakup

KotakMahindraBank

2Q14

1Q15

2Q15

YoY

QoQ

3,530

4,298

4,445

25.9%

3.4%

Profitbeforeroyalty&taxes

1,910

1,830

1,900

0.5%

3.8%

PAT

1,250

1,200

1,250

0.0%

4.2%

20

40

70

250.0%

275.0%

1,520

2,230

2,240

47.4%

0.4%

400

680

660

65.0%

2.9%

170

10

105.9%

NA

6,070

4,580

6,680

10.0%

45.9%

440

490

520

18.2%

6.1%

10

70

130

1200.0%

85.7%

PAT
KotakMahindraPrime(KMP)

KMCC
PAT
KotakSecurities
Totalincome
PAT
KotakAssetManagement
PAT(AMCandTrusteeCo.)
KotakInsurance
Grosspremiumincome
Profit
Internationalsubsidiaries
PAT
Source:CompanyData,PLResearch

October22,2014

KotakMahindraBank

Exhibit10: ConsolidatedROEsProfitabilitystrong,subsidiarytoaddvaluegoingahead
ROADecomposition

2011

2012

2013

2014

2015E

2016E

2017E

NetInterestIncome

5.40%

4.77%

4.60%

4.64%

4.63%

4.59%

4.55%

Fees

3.03%

2.59%

2.16%

2.15%

2.35%

2.34%

2.22%

Investmentprofits

0.16%

0.15%

0.18%

0.20%

0.16%

0.13%

0.11%

Netrevenues/Assets

8.60%

7.51%

6.93%

6.99%

7.14%

7.06%

6.87%

OperatingExpense

4.43%

3.85%

3.44%

3.38%

3.55%

3.47%

3.21%

Provisions

0.29%

0.14%

0.23%

0.31%

0.24%

0.22%

0.20%

Taxes

1.19%

1.13%

1.05%

1.11%

1.10%

1.11%

1.14%

TotalCosts

5.91%

5.12%

4.73%

4.80%

4.89%

4.80%

4.54%

ROA

2.69%

2.39%

2.20%

2.19%

2.26%

2.26%

2.33%

17.31%

16.56%

15.20%

16.06%

17.06%

16.12%

15.15%

15.5%

14.4%

14.5%

13.7%

13.2%

14.0%

15.4%

Equity/Assets
ROE

Source:CompanyData,PLResearch

Exhibit11: WechangeourratingtoAccumulatefromReducewithSep16PTatRs1085
Value(Rsmn)

PerShare(Rs)

KotakSecurities

31,042

39

AssetManagement

22,576

29

6,204

Internationalsubsidiaries

11,251

14

Others

15,235

19

Insurance

30,458

39

116,768

148

Exinsurance

86,310

110

Shares(mn)

787

KMCC

Total

TotalSubsidiaryvaluation

116,768

148

Lendingbusinessvaluation(3.4xSep16book)

737,276

936

Sep16PT

1,085

ImpliedValuationsforLendingbusiness
CurrentPrice

1063

LendingbusinessImpliedvalue

915

LendingbusinessMar15book

216,846

ImpliedP/B(Sep16)

275
3.32

LendingbusinessMar15Profit
ImpliesP/E(Sep16)

31,365

42.3
21.6

Source:CompanyData,PLResearch,Bloomberg

October22,2014


IncomeStatement(Rsm)
Y/eMarch

2013

2014

2015E

2016E

85,142
18,698
266
104,106
62,417
41,689
21.4
1,652
19,462
21,114
125,219
23.2
31,238
31,565
19.8
2,166
(88)
2,093
29,472
9,562
32.4
19,909
15.7

93,434
20,500
423
114,357
65,974
48,382
16.1
2,060
22,417
24,477
138,833
10.9
35,190
37,669
19.3
1,632
1,844
3,282
34,387
11,529
33.5
22,859
14.8

105,165
20,707
423
126,295
73,019
53,276
10.1
1,800
27,028
28,828
155,123
11.7
39,632
42,472
12.7
2,778

2,779
39,693
13,029
32.8
26,663
16.6

123,189
24,782
423
148,394
85,414
62,980
18.2
1,800
31,979
33,779
182,173
17.4
46,169
50,590
19.1
2,981

2,982
47,608
15,626
32.8
31,982
19.9

2015E

2016E

ParValue
5
5
5
No.ofequityshares
747
787
787
Equity
3,733
3,937
3,937
Networth
148,465
186,177
206,382
Adj.Networth
144,504
179,881
199,702
Deposits
510,288
590,723
705,021
Growth(%)
32.4
15.8
19.3
LowCostdeposits
149,183
188,280
230,702
%oftotaldeposits
29.2
31.9
32.7
TotalLiabilities
1,041,495 1,108,849 1,261,675
NetAdvances
672,989
741,079
831,976
Growth(%)
24.7
10.1
12.3
Investments
284,884
250,995
292,676
TotalAssets
1,041,495 1,108,849 1,261,675
Source:CompanyData,PLResearch.

6
656
3,937
236,781
228,703
901,040
27.8
297,098
33.0
1,557,782
1,021,824
22.8
365,773
1,557,782

Int.EarnedfromAdv.
Int.EarnedfromInvt.
Others
TotalInterestIncome
Interestexpense
NII
Growth(%)
TreasuryIncome
NTNII
NonInterestIncome
TotalIncome
Growth(%)
OperatingExpense
OperatingProfit
Growth(%)
NPAProvisions
InvestmentProvisions
TotalProvisions
PBT
TaxProvisions
EffectiveTaxRate(%)
PAT
Growth(%)

QuarterlyFinancials(Rsm)
Y/eMarch
Q3FY14

Q4FY14

Q1FY15

Q2FY15

21,923
12,796
9,127
2,997

12,125
6,277
2,773
3,504
5,847
5,847
697

5,150
1,750
3,400

3,400

22,125
12,459
9,665
3,405

13,070
6,999
3,157
3,843
6,071
6,071
(62)

6,133
2,061
4,072

4,072

22,864
12,842
10,022
3,998

14,020
7,364
3,484
3,880
6,655
6,655
140

6,515
2,217
4,298

4,298

23,525
13,136
10,389
4,665

15,054
7,717
3,545
4,172
7,336
7,336
537

6,800
2,355
4,445

4,445

2013

2014

2015E

2016E

1,063
747
793,645
76.2
26.7
199
196
39.9
5.3
5.4
0.7
0.1

1,063
787
836,985
75.5
29.0
236
231
36.6
4.5
4.6
0.8
0.1

1,063
787
836,985
66.3
33.9
262
257
31.4
4.1
4.1
0.9
0.1

1,063
656
697,487
44.8
40.6
301
294
26.2
3.5
3.6
1.1
0.1

2013

2014

2015E

2016E

4.5
2.1
14.4

4.5
2.1
13.7

4.5
2.2
13.6

4.5
2.3
14.4

Efficiency
Y/eMarch

2013

2014

2015E

2016E

CostIncomeRatio(%)
CDRatio(%)
BusinessperEmp.(Rsm)
ProfitperEmp.(Rslacs)
BusinessperBranch(Rsm)
ProfitperBranch(Rsm)

49.7
131.9
85
14.3
2,787
47

48.3
125.5
83
14.3
2,728
47

48.3
118.0
84
14.5
2,738
47

47.7
113.4
91
15.1
2,978
50

AssetQuality
Y/eMarch

2013

2014

2015E

2016E

GrossNPAs(Rsm)
8,295
NetNPAs(Rsm)
3,961
Gr.NPAstoGrossAdv.(%)
1.2
NetNPAstoNetAdv.(%)
0.6
NPACoverage(%)
52.2
Source:CompanyData,PLResearch.

11,523
6,296
1.6
0.8
45.4

13,360
6,680
1.6
0.8
50.0

16,156
8,078
1.6
0.8
50.0

InterestIncome
InterestExpense
NetInterestIncome
NonInterestIncome
CEB
Treasury
NetTotalIncome
OperatingExpenses
EmployeeExpenses
OtherExpenses
OperatingProfit
CoreOperatingProfit
Provisions
Loanlossprovisions
InvestmentDepreciation
Profitbeforetax
Tax
PATbeforeEO
Extraordinaryitem
PAT

KeyRatios
Y/eMarch
CMP(Rs)
EquityShrs.Os.(m)
MarketCap(Rsm)
M/CaptoAUM(%)
EPS(Rs)
BookValue(Rs)
Adj.BV(75%)(Rs)
P/E(x)
P/BV(x)
P/ABV(x)
DPS(Rs)
DividendYield(%)

BalanceSheet(Rsm)
Y/eMarch

2013

2014

KotakMahindraBank

Profitability(%)
Y/eMarch
NIM
RoAA
RoAE

October22,2014

KotakMahindraBank

PrabhudasLilladherPvt.Ltd.
3rdFloor,SadhanaHouse,570,P.B.Marg,Worli,Mumbai400018,India
Tel:(9122)66322222Fax:(9122)66322209
RatingDistributionofResearchCoverage

%ofTotalCoverage

60%

51.9%

50%
40%

31.7%

30%
16.3%

20%
10%

0.0%
0%
BUY

Accumulate

Reduce

Sell

PLsRecommendationNomenclature

BUY

Over15%OutperformancetoSensexover12months

Accumulate

: OutperformancetoSensexover12months

Reduce

UnderperformancetoSensexover12months

Sell

: Over15%underperformancetoSensexover12months

TradingBuy

Over10%absoluteupsidein1month

TradingSell

: Over10%absolutedeclinein1month

NotRated(NR)

Nospecificcallonthestock

UnderReview(UR)

: Ratinglikelytochangeshortly

This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as
informationandisnotforcirculation.ThisdocumentisnottobereportedorcopiedormadeavailabletootherswithoutpriorpermissionofPL.Itshouldnotbe
consideredortakenasanoffertosellorasolicitationtobuyorsellanysecurity.
Theinformationcontainedinthisreporthasbeenobtainedfromsourcesthatareconsideredtobereliable.However,PLhasnotindependentlyverifiedtheaccuracy
orcompletenessofthesame.NeitherPLnoranyofitsaffiliates,itsdirectorsoritsemployeesacceptanyresponsibilityofwhatsoevernaturefortheinformation,
statementsandopiniongiven,madeavailableorexpressedhereinorforanyomissiontherein.
Recipientsofthisreportshouldbeawarethatpastperformanceisnotnecessarilyaguidetofutureperformanceandvalueofinvestmentscangodownaswell.The
suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an
independentexpert/advisor.
EitherPLoritsaffiliatesoritsdirectorsoritsemployeesoritsrepresentativesoritsclientsortheirrelativesmayhaveposition(s),makemarket,actasprincipalor
engageintransactionsofsecuritiesofcompaniesreferredtointhisreportandtheymayhaveusedtheresearchmaterialpriortopublication.
Wemayfromtimetotimesolicitorperforminvestmentbankingorotherservicesforanycompanymentionedinthisdocument.

October22,2014