Kotak Mahindra Bank - Low Cost Liability Banking Franchise

PrakasS2 · February 14, 2023, 6:07am

Agree with you on that point, however kotak is now operating at lowest credit costs, highest nims and fee income is also strong. Do you see further scope of these parameters driving roe?

In my view best banks can operate at 2-2.2% roa sustainably, it makes sense if bank is overcapitalized is looking to grow fast or acquisitions. However i wanted to know what can be the steady state capitalization levels, roe and roa for the bank to calculate its terminal value.

say 5% terminal growth, 15% roe, 66% dividend payout etc are these fair assumptions

nirvana_laha · February 14, 2023, 6:25am

In my view best banks can operate at 2-2.2% roa sustainably, it makes sense if bank is overcapitalized is looking to grow fast or acquisitions. However i wanted to know what can be the steady state capitalization levels, roe and roa for the bank to calculate its terminal value

Pre Covid CRAR was 17-18%, went up to 22-23% during Covid and is now in the late 21%s. I expect the CRAR to come down to pre Covid levels, increasing leverage. That’s a kicker for ROE. Besides, only now has Kotak started flexing its asset side muscles in high yield loans - unsecured PLs, Microfinance etc. So I expect higher yields from advances too. Given Kotak’s stellar deposit franchise, NIMs may stay elevated for a few more Qs due to this incremental retail lending.

PrakasS2 · February 14, 2023, 6:31am

yes i just wanted to know the relationship between capital adequecy ratio and leverage, how can i calculate leverage if the crar is bought down to say 16%, If someone very good in finance who can help me understand

Yes i too expect company to maintain its NIMs as it is planning to increase the unsecured lending, However part of nim expansion came from rising interest rates which should stabilize in couple of quarters. So NIMs may not expand but stay here.

nirvana_laha · February 14, 2023, 6:37am

yes i just wanted to know the relationship between capital adequecy ratio and leverage, how can i calculate leverage if the crar is bought down to say 16%, If someone very good in finance who can help me understand

You can simply go to screener and calculate leverage ratios for FY18-20. The ratio of total balance sheet size to total equity was ~6.7-6.8x which reduced to 5.7x in FY22.

Hope this helps.

Also one suggestion regarding posting on the forum. You might want to consolidate your comments/queries into one post rather than multiple. The readability of the thread is maintained that way.

s.j.saha · April 29, 2023, 9:38am

Q4FY22-23 QUARTERLY RESULTS

Board has recommended a dividend of Rs 1.50 per equity share.

CONFERENCE CALL

CONCALL TRANSCRIPT

PRESENTATION
https://www.bseindia.com/xml-data/corpfiling/AttachLive/d6354f99-7ef1-4636-860e-1154e2bab128.pdf
FINANCIALS
https://www.bseindia.com/xml-data/corpfiling/AttachLive/a37441b8-186e-4e0b-8f96-87348820dcca.pdf

ranvir · May 7, 2023, 10:52am

Kotak bank Q3 concall highlights -

Segment wise loan growth -

Home Loans, LAP - 92 vs 76k cr, up 22 pc
Consumer bank (WC) - 30 vs 26k cr, up 15 pc
PL,BL,CDs - 15.7 vs 10k cr, up 56 !!!
Credit Cards- 10 vs 5.5k cr, up 81 pc !!!
Agri- 27.5 vs 26k cr, up 9 pc

Tractor Fin - 14 vs 10.7 k cr, up 29 pc
Micro Fin - 6.2 vs 3k cr, up 103 pc
Corporate bank - 70 vs 69k cr, up 1 pc
SME - 24 vs 20.4k cr, up 18 pc
Others - 6.5 vs 4.5 k cr, up 48 pc

Overall - 3.25 vs 2.75 lakh cr, up 19 pc

Deposits -

CASA at 52.8 vs 60.7 pc

A lot of SA deposits moved to Term Depositss

Consol PAT contributions-

Bank-3496 vs 2767 cr
Prime (car fin)-224 vs 313 cr
Investments-100 vs 101 cr
Microfinance-89 vs 43 cr
Securities-182 vs 252 cr
Kot Mah Capital-48 vs 42 cr
Life Ins-205 vs 267 cr
Gen Ins-(55) vs (46) cr
AMC - 192 vs 102 cr

Consol PAT at 4566 vs 3892 cr

Consol RoA at 3.06 vs 2.94 pc
Consol RoE - 16.9 vs 16.6 pc
Despite Capital Adequacy > 23 pc

Total branches at 1780

Management commentary -

Sustainable growth tgt for next few yrs at 17-22 pc
Q4 NIMs at 5.75 pc !!!

Bank’s standalone Q4 operating profits at 4647 cr, up 39 pc

GNPAs at 1.78 vs 2.34

NNPAs at 0.37 pc, PCR of 80 pc

Slippages - 823 cr ( @ 0.92 pc of advances on an annualised basis - well within control )

Restructured assets at - 0.22 pc ( very healthy )

Tractor Fin Mkt share at 11 pc

Term deposits grew by 40 pc yoy due increasing rates

Seeing slowdown in Kotak Prime’s business in FY 24

Kotak Life’s VNB margins are now best in the industry

Kotak Securities cash Mkt share at 10.5 vs 10.6 pc, Options mkt share at 5.6 vs 3 pc

Fall in Kotak Sec profits due to sharp fall in daily cash mkt turnover by aprox 30 pc

Kotak AMC AUM up 5 pc, reached 2.87 lakh cr. Equity AUM at 1.53 lakh cr, up 17.6 pc. Equity AUM mkt share at 6.5 pc. SIP book at 870 cr/month. Retail AUMs at 55 pc

NIMs should sustain above 5 pc for FY 24 as well

Witnessed repayments in the corporate book. Seeing high competition in this segment

Added aprox 100 branches last FY. Aim to add 150 branches this year

Clearly, Bank’s focus is more on digital 811 accounts vs physical branches

However, a healthy mix of physical branches shall also be maintained

Going to invest heavily in technology in next 12 months to improve per branch productivity vs peers. Likely to see significant gains going fwd

Disc: holding, biased

Mayank.mail · July 10, 2023, 10:53am

Important points being raised here… Why is KMB so dependent on Uday Kotak? Banking is supposed to be a boring business then why such a high dependance on a ingle person? Surely UK’s insistence on continuing is harming the banks’ shareholders… last 3 years ICICI with much lower credit growth and high NPAs has returned much higher shareholder returns

s.j.saha · July 22, 2023, 7:54am

Q1FY2023-24 Financial Result

Media Release

Conference Call

Presentation

Financials
https://www.bseindia.com/xml-data/corpfiling/AttachLive/c31733f3-8030-4c21-9ffc-8ffd8baf5c17.pdf

zoro99 · July 24, 2023, 11:04am

Such good results, consistently beating the estimates, the guidance of >5% NIMs, and still stock has been underperforming the market for so long

Source

What could be the reasons for this underperformance:

Is it Uday Kotak’s planned exit and lack of clarity on his successor?
Is it their inclination towards risky loans whose share has been increasing as a percentage of the overall loan book?
Or since the stock has been historically valued above(P/B) its peers and now its just a time correction of the valuations?

I am looking forward to inputs from the community members.

Disc – Holding in the portfolio with significant allocation.

jothi_basu · July 24, 2023, 4:16pm

Shanthi or manian will be next successor i think… Board of directors have been associated for many years … Definitely uday will play a significant role as a non executive member

ranvir · July 24, 2023, 4:52pm

IMHO …HDFC twins, Bajaj Twins, Kotak and Chola used to get hefty scarcity premiums in the face of most other lenders literally goofing up for the last 10 odd yrs ( pre 2022 )

Now, most are getting their act together. Hence the time correction in the frontline names and moderation in P/B multiples. I think, it should be close to its end now ( the time correction ). These stocks may start to move in line with their earnings growth from here on … At least I hope so

Disc : holding all of them except Chola.

Shubham_Jain1 · August 20, 2023, 10:03am

I have entered most of the big banks, particularly big in KotakBank except ICICI (and no reason for that either). Couldnt shake the feeling that I have entered them at top of the cycle. The deposit rates are rising and due to higher loan rates some NPAs might crop with some lag? Is there some data to back up this hypothesis?

I had just booked some good profits in midcaps + smallcaps, and just diverted the funds to large caps, not sure whether I should have done that.

There is some heavy contraction in multiples of HDFC Bank, Kotak Bank and Bajaj Finance. Still Kotak Bank and particularly Bajaj Finance still have some premium valuation attached to them, do they still deserve it is the question?

chaitanyakhanna · August 20, 2023, 11:14am

Do they deserve a premium valuation? Well, we will have to see. My bet is that the bigger names (like Kotak and HDFC) certainly deserve a higher valuation.

The underwriting skills for other public banks/smaller banks still need to be tested (I don’t believe that AL/ML skills) have helped them underwrite better. Once the environment turns, they are going to see higher slippages, npas.

Once the NPAs start coming up in the next 3-5 years (higher loan rates, recessionary environment), we will see all of this play out.
Remember Warren Buffet’s quote, “Only when the tide goes out do you discover who’s been swimming naked.” And once that happens, we will see them gain market share swiftly.

My money is on HDFC, Kotak, etc. For me, they are now trading at a reasonable valuation of 3 - 3.5 BV. If they can grow advances at 15%+ over 5 years, they certainly deserve this. The NIM’s surely would contract but not by much, and the repo rates are going to be sticky for a while which is certainly better for banks.

Disclosure - Invested.

gsapte · August 20, 2023, 12:47pm

There were same concerns raised about HDFC Bank in 2013-2014, when many investors used to believe that, it will be difficult for HDFC Bank to continue to grow at 20% beyond 2013-2014, but see what has happened.
Many banks which were considered as “Next HDFC Bank” (Yes Bank, INDUSIND Bank) have had their own problems and HDFC Bank seems to be still growing at decent 15 to 20% in terms of Loan Book as well as profits. It may surprise us in future as well by still growing at good rate.
Kotak Bank is more risky due to their higher NPA(s) and exposure to risky areas, but still managed conservatively as compared to most of the other banks.

Let us what happens in next 4-5 years.

Nitin_Naudiyal · August 20, 2023, 6:32pm

This is from Kotak Daily, a good read about HDFC Bank

lokeshreddy2007 · August 20, 2023, 8:17pm

We were reading exact same articles about ITC an year back. Now the same analysts are extremely bullish.
Let’s say it this way: Analysts are always bullish when stock is in uptrend and find reasons why stock deserves premium and the reverse is true as well.
You make lot of money buying stock when analysts are pessimistic as long as business fundamentals are great and there is a scope for future growth.

HDFC will not get same valuations like it used and it is expected. You give premium valuations to the stock which is growing at rapid rates. HDFC with its size cannot match it’s past performance but I won’t be surprised if it is still trading 3X book value in 2030.

Hemal000 · August 30, 2023, 3:58am

Quite interesting words by Mr Uday Kotak from annual report 2022-23

s.j.saha · September 2, 2023, 9:42am

Uday Kotak steps down

Dipak Kapur JMD to be interim MD

Planned but a momentous point in this Bank’s history

https://twitter.com/udaykotak/status/1697905036838224291?t=OQ_6WEjNBiKtyTCZ2yjwQA&s=19

thakurvi · October 11, 2023, 6:18pm

Started buying on monthly basis. This time I got lucky and got it around 1730 levels. It seems kotak bank is more cheaper in comparison to Hdfc bank and can be future case of demerger for value unlocking of its different business verticals.I was buying it because nothing has changes in business but its valuation is getting adjusted by Mr. Market. Retails participation is also getting reduced. Stocks is idling in sideways with out of hot talk in a town. Lets see how this unfolds in future. Disclaimer: Started buying from 1770 and keep on buying till price hovers in this range.

ashishraj · October 18, 2023, 7:27am

The Reserve Bank of India (RBI) has, by an order dated October 17, 2023, imposed a
monetary penalty of ₹3.95 crore (Rupees Three crore Ninety Five lakhs only) on Kotak
Mahindra Bank Limited

Reportpertaining to ISE 2022, and all related correspondence in that regard revealed, inter alia, non-compliance with the aforesaid directions by the bank to the extent it (i) failed to carry out annual review / due diligence of the service provider, (ii) failed to ensure that
customers are not contacted after 7 pm and before 7 am, (iii) levied interest from disbursement due date instead of the actual date of disbursement, contrary to the terms & conditions of sanction, and (iv) levied foreclosure charges despite there being no
clause in the loan agreement for levy of prepayment penalty on loans recalled/foreclosure initiated by the bank

While the penalty is paltry and no major ramifications, it does shows how the Banks rarely follow rules.