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Kotak Mahindra Bank: Business growth gains momentum, customer acquisition remains focus area

What’s buzzing: Kotak Mahindra Bank posted operationally healthy results with much awaited revival in credit growth at 14.7% YoY and steady operating performance. Customer acquisition and selective business growth remains focus area, going ahead.

Context: NII growth was reported at 3.2% YoY, lower than credit offtake, owing to decline in NIMs at 4.45%. The same is attributable to higher growth in secured business. While other income was boosted by core fee income, C/I ratio jumped 110 bps QoQ due to normalisation of business activity and employee addition. Credit cost moderated to 18 bps vs ~32 bps in Q1FY22, which aided 23.8% QoQ growth in PAT. GNPA came off 37 bps QoQ to 3.19%, though restructuring increased from 25 bps of loans in Q1FY22 to 54 bps in Q2FY22, still comparable to peers.

 Our Perspective: Post maintaining caution in earlier quarters, Kotak Mahindra Bank has pedalled higher than industry credit growth and is further expected to continue the pace ahead. The bank’s portfolio is stress tested over various business cycle and has remained resilient. Identifying and focusing on growth engines (MSME and retail segment) and targeting customer acquisition is seen aiding competitive strength thereby enabling ability to capture future opportunities. Given improvement in growth momentum, strong liabilities franchise (CASA at 60.6%) and contingent provision buffer (~54 bps), we expect profit growth at 28% CAGR in FY22-24. Thus, healthy return ratios at ~1.8-2% RoA & 12-13% RoE with strong management seems to justify valuations. Healthy performance of subsidiaries (Kotak Life Insurance, Kotak Securities and Kotak AMC) is expected to further valuation ahead. Thus, we remain positive on the fundamentals.