Kotak Mahindra Bank earnings: Solid overall performance

Radhika MerwinBL Research Bureau Updated - January 23, 2018 at 08:44 PM.

Continues to deliver industry-leading returns

Healthy loan growth, stable margins and steady asset quality led to a strong 29 per cent earnings growth for Kotak Mahindra Bank in the recent March quarter.

The bank ended fiscal 2014-15 with 24 per cent growth in net profit, backed by 25 per cent growth in loan book.

Loan book profile
The bank has been diversifying its loan portfolio over the years. Beginning with retail exposure, the bank has been upping its lending to the corporate segment.

The corporate banking segment contributes 30 per cent to the bank’s total lending and grew 41 per cent during the March quarter, largely led by working capital financing. Within the retail segment, home loans and the agriculture segment drove growth.

The bank has been consciously winding down its exposure to commercial vehicle and construction equipment (CV/CE) given the increasing delinquency in this segment. Lending to this space declined 4 per cent over last year.

The healthy momentum in the overall loan book led to a strong 16 per cent growth in net interest income during the March quarter. At 4.9 per cent, the bank’s net interest margin is one of the best in the industry. Its return on asset — amongst the best in the industry — is up marginally from last year to 2 per cent.

The strong earnings show aside, the company’s 1:1 bonus announcement drove the stock of Kotak Bank up 6.5 per cent on Tuesday.

Post last year’s merger announcement with ING Vysya Bank, the stock has gained 32 per cent. At the current price, the stock of Kotak Bank is trading at more than five times its one-year forward standalone book value.

But then, Kotak Bank has always traded at a premium to its peers on the back of superior returns and margins.

Merger benefits The merger with ING Vysya Bank took effect from April 2015. Kotak Bank has gone relatively slower on branch expansion compared to its mid-tier peers, such as YES Bank and IndusInd Bank, over the last five to six years.

The merger will help the bank expand its branch presence significantly. Kotak Bank, which has 684 branches currently, will nearly double this number with the ING Vysya merger, leapfrogging several years of growth.

Published on May 5, 2015 16:56