BackKotak Mahindra Bank: performance supports premium valuations
Higher other income helped the bank clock 38% growth in consolidated net profit to Rs913 crore in the March quarter from a year ago
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Kotak Mahindra Bank Ltd’s shares gained 6.5% on Tuesday after its better-than-expected March quarter results because of higher loan growth and with its banking, investments and securities businesses performing well.
Uday Kotak, executive vice-chairman and managing director of Kotak Mahindra Bank, in a conference call to analysts said that the merged entity with ING Vysya Bank Ltd will clock loan growth of around 20% in the current fiscal year. Advances growth was at a four-year high at 24%, helped by loans to large corporates, mainly term lending and working capital loans, which grew by over 40% from a year ago.
Higher other income helped the bank clock 38% growth in consolidated net profit to ₹ 913 crore in the March quarter from a year ago.
The management said the merged entity will focus on increasing the market share for wholesale credit and business banking, especially loans to small and medium enterprises. However, the management continues to remain cautious over lending for purchases of construction equipment and the commercial vehicle segment, which declined 4.4% given the slowdown in the rural economy. Auto loans and home loans, including loan against property, grew at a slightly higher rate compared with the December quarter. Deposits grew 27% from a year ago in the three months ended March.
Credit costs, or the percentage of provisioning against total advances, for the stand-alone business is expected to come down to 30-40 basis points from a little over 40 basis points in the March quarter as it took necessary steps to mitigate risks quite early on. The bank will invest around ₹ 200 crore in integration with ING Vysya Bank, which will be absorbed smoothly in the next two quarters, according to the management.
Profit after tax for investments, securities and investment advisory businesses more than doubled helped by buoyant capital markets and investment banking activity. Also, fee income grew by 52% from a year ago led by higher commissions from mutual funds and insurance business. The bank also earned higher fees on debt capital market activities. Higher other income helped it clock 24% growth in consolidated profit after tax.
It continues to maintain a healthy net interest margin at 4.93% and net non-performing assets remain low at 0.8%.
Kotak Mahindra Bank shares are trading at a premium valuation of 4.4 times price-book for 2015-16, the highest among peers. As long as it is able to expand into newer geographies with the merged entity clocking decent growth, the shares will continue to trade at premium valuations.
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