Sector Outlook: Positive
Net profit beats market estimates
Kotak Mahindra Bank’s Net Interest Income rose to Rs. 6,909 crores in Q4FY24, a 5.4% increase from the previous quarter and a 13.2% increase from last year, due to strong business growth. Pre-provision operating profit (PPOP) grew by 19.6% from the previous quarter to Rs. 5,462 crores, and provisions dropped to Rs. 264 crores due to a release of Rs. 157 crores from an AIF provision. Net profit surged to Rs. 4,133 crores, beating market expectations. Net Interest Margin (NIM) improved to 5.28%, and Gross Non-Performing Assets (NPA) decreased to 1.39%. The bank’s Capital Adequacy Ratio increased to 20.55%. Gross Deposits rose by 9.8% from the previous quarter to Rs. 4,48,954 crores, while Gross Advances grew by 4.6% to Rs. 3,76,075 crores. CASA deposits fell to 45.5% due to term deposits. The board recommended a Rs. 2 dividend per share.
Key Concall Highlights
- The bank aims for loan growth to be 1.5-2 times the nominal GDP growth.
- Following a recent RBI directive, the bank’s top priority is to return to normal operations, expecting an annual financial impact of Rs. 300-450 crores on profit before tax.
- The bank plans to strengthen relationships with existing customers to reduce the impact on business.
- IT spending will remain around 10% of total operating expenses.
- Subsidiaries Kotak Securities and Kotak Capital performed well this quarter.
- The bank’s liability product, ActivMoney, saw a 102% growth year-on-year.
- Most deposits have been repriced, leading to a gradual increase in the cost of funds.
- The bank is comfortable with its unsecured loans and aims to increase their proportion to mid-teens, with adequate risk provisions.
- The system has been liquid since mid-February, and deposit rates have been stable, expected to remain so based on domestic demand and supply.
Valuation and Outlook
Kotak Mahindra Bank reported strong numbers for the quarter ending March 31, 2024, with net profit surpassing market expectations. The bank maintained its strict asset quality standards, keeping metrics stable. While Net Interest Margins (NIMs) slightly compressed, they remained stable despite high-interest rates. High-cost term deposits, an industry-wide trend, continued to impact margins. The capital markets division excelled, with Kotak Securities achieving 100% annual growth and over Rs. 1,200 crores in revenue for FY24. The bank addressed recent RBI actions, expecting only a 2-3% impact on profit before tax and committing to comply with regulations promptly. We’ll monitor how the bank manages this situation and the new management’s approach to uphold its legacy.
