20 January 2018

3QFY18 Results Update | Sector: Financials-Banks

Kotak Mahindra Bank

BSE SENSEX S&P CNX
35,512 10,895
CMP: INR1060 TP: INR1,220 (+15%) Buy
Bloomberg KMB IN Operating environment improving; Subs performance remains robust
Equity Shares (m) 1,840  Standalone results: PAT grew 20% YoY to INR10.53b (5% miss) in 3QFY18.
M.Cap.(INRb)/(USDb) 1951.3 / 30.5 Operating profit grew 19% YoY, led by 17% YoY growth in NII and continued
52-Week Range (INR) 1114/719 control on operating expenses.
1, 6, 12 Rel. Per (%) -1/-5/15
 Margin contracted another 13bp QoQ to 4.2%, while fee growth stood at a
Avg Val, INRm 2200
healthy 14% YoY. CASA deposits grew 34% YoY to INR843.9b, of which SA
Free float (%) 69.9
deposits grew 52% YoY (+9% QoQ). However, the CASA ratio declined 110bp
QoQ (+470bp YoY) to 46.7%.
Financials & Valuations (INR b)  Absolute GNPA declined 2.6% QoQ, while the GNPL ratio improved by 16bp
Y/E MARCH 2018E 2019E 2020E QoQ to 2.31%. PCR (cal.) improved by 419bp QoQ to 53.9%. Restructured
NII 97.3 120.6 148.6 loans stood stable at INR670m (4bp), while SMA2 accounts increased to
OP 72.9 92.3 115.7 19bp of loans (INR3.08b) v/s 16bp in the previous quarter.
Cons. NP 62.3 79.1 103.2  Loans grew 23% YoY (+4% QoQ), while deposits increased 21% YoY (+9%
NIM (%) 4.3 4.4 4.5 QoQ). KMB guided for 20%+ loan growth, as it sees improving trends in the
Cons. EPS (INR) 32.7 41.5 54.2 micro environment. Share of core deposits (CASA+less than INR50m retail
EPS Gr. (%) 22.0 26.9 30.5 TD) stood at 75% (77% in 2QFY18).
Cons. BV. (INR) 248.9 289.6 342.9  Subs performance remains robust: a) KMPL reported PAT of INR1.48b
Cons. RoE (%) 13.2 14.2 15.8 (+11% YoY), while Kotak Securities reported PAT of INR1.54b (+81% YoY). b)
RoA (%) 1.6 1.7 1.8 Kotak Mahindra Capital, Life Insurance and Asset Management subs also
Valuations reported strong growth in net profit, driving consolidated net profit to
P/E(X) (Cons.) 32.4 25.5 19.6 INR16.2b (+28% YoY). c) Asset management business’ average AUM
P/BV (X) (Cons.) 4.3 3.7 3.1 increased 8% QoQ (+46% YoY). d) K-Sec market share came in at 2% v/s
1.9% in 2QFY18.
 Valuation view: Share of KMB in consol. profit stands at ~65% (69% in
2QFY18), as growth in subsidiaries remains strong. We expect ~25%
earnings CAGR over FY17-20E, led by a revival in loan growth and controlled
opex. Strong presence across products and healthy capitalization (Tier1 of
~18%) place the bank in a sweet spot to capitalize on growth opportunities
and gain market share. We value KMB at INR1,220 per share, which
corresponds to 3.8x Mar-20E ABV for the lending business. Maintain Buy.
Quarterly Performance (INR m)
Y/E March FY17 FY18E FY17 FY18E
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Kotak Bank (standalone)
Net Interest Income 19,191 19,954 20,503 21,614 22,456 23,127 23,937 27,737 81,261 97,256
% Change (Y-o-Y) 20.1 18.9 16.1 16.4 17.0 15.9 16.7 28.3 17.8 19.7
Operating Profit 13,150 14,401 15,277 17,020 15,954 17,248 18,201 21,533 59,848 72,936
% Change (Y-o-Y) 120.3 37.8 26.8 42.5 21.3 19.8 19.1 26.5 48.1 21.9
Net Profit 7,420 8,133 8,798 9,765 9,127 9,943 10,532 12,842 34,115 42,442
% Change (Y-o-Y) 291.0 42.8 38.6 40.3 23.0 22.3 19.7 31.5 63.2 24.4
Other Businesses
Kotak Prime 1,200 1,300 1,330 1,330 1,320 1,500 1,480 1,850 5,150 6,150
Kotak Mah. Investments 400 530 480 560 450 550 500 961 1,960 2,461
Kotak Mah. Capital Co 230 50 70 110 50 -10 360 90 460 490
Kotak Securities 600 960 850 1,210 1,250 1,180 1,540 1,755 3,610 5,725
International subs 130 310 220 210 170 280 320 315 860 1,085
Kotak Mah. AMC & Trustee Co. 190 70 160 130 150 230 380 403 560 1,163
Kotak Investment Advisors 110 10 0 0 0 0 0 0 125 0
Kotak OM Life Insurance 710 630 680 1,010 1,030 1,000 970 1,091 3,030 4,091
Conso. PAT 10,669 12,023 12,668 14,045 13,467 14,413 16,240 18,224 49,404 62,344
% Change (Y-o-Y) 106.5 27.4 33.9 33.2 26.2 19.9 28.2 29.8 42.8 26.2

Research Analyst: Nitin Aggarwal (Nitin.Aggarwal@MotilalOswal.com); +91 22 3982 5540 | Anirvan Sarkar (Anirvan.Sarkar@MotilalOswal.com); +91 22 3982 5505
Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415 | Parth Gutka (Parth.Gutka@motilaloswal.com); +91 22 3010 2746
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Exhibit 1: Quarterly performance v/s our estimates and reasons for deviations (INRm)
Actual vs Estimate
Kotak Bank (standalone)
Net Interest Income
% Change (Y-o-Y)
Operating Profit
% Change (Y-o-Y)
Net Profit
% Change (Y-o-Y)
Consol. PAT
% Change (Y-o-Y)
Overall CASA ratio declined
to 46.7% from 47.8% in
2QFY18. Avg. SA balances
grew 60% YoY, whereas
avg. CA balances grew 21%
YoY
Bank’s digital initiatives
showing result in the form
of controlled opex.
Employee expenses grew
5% YoY.
Net stress loans including
SMA2 accounts at ~132bp
Proportion of Equity AUM
increased to 37.3% of
overall AUM v/s 25.8% in
3QFY17
20 January 2018
Kotak Mahindra Bank
3QFY18A 3QFY18E v/s Est. Comments
23,937 24,237 -1
16.7 18.2
18,201 18,920 -4
19.1 23.8
10,532 11,121 -5
19.7 26.4
Consol PAT was above our estimate due to robust
16,240 15,676 4 performance of the subsidiaries
28.2 23.7
Source: MOSL, Company
Lending Business: Broad-based loan growth; improving asset quality and
strong key operating metrics
Healthy loan growth; robust CASA growth continues
 Loans grew 23.1% YoY and 4.3% QoQ led by 37.4% YoY / 8.6% QoQ growth in
CV loans while small business and personal banking grew 9.7% QoQ and 45.1%
YoY. Home loan and LAP grew 5.2% QoQ and 23.5% YoY.
 Kotak Mahindra Prime’s PAT grew 11% YoY while customer assets grew 23%
YoY.
 SA deposits grew 51.6% YoY / 9.3% QoQ. SA deposits as a proportion of overall
deposits stood at 32.3% (25.8% a year ago). Overall CASA ratio declined 110bp
QoQ to 46.7%. CASA and TDs (below INR 50m) constitute 75% of the total
deposits
 Weighted average SA rate for the quarter was 5.58%
Strong revenue growth, coupled with controlled opex, drives healthy core
performance
 NIMs at 4.2% declined 30bp QoQ however healthy loan growth still enabled
16.7% YoY growth in NII.
 Core fee income grew 14% YoY. Coupled with strong cost control (opex growth
at 12.6% YoY) this led to healthy operating profit growth of 19.1% YoY
Net stress loans remain one of the lowest in the system
 While the challenges continue in the economy, KMB reported strong asset
quality performance with decline in GNPL.
 The bank has negligible total net stress on the book. NNPA (1.09% of advances),
OSRL (INR6.7b, 4bp of advances) and SMA2 accounts (INR 3.08b, 19bp of
advances) together form 1.32% of advances.
Healthy performance in non-lending business
 Profitability in securities business improved to INR1.54b, a 81.2% YoY growth
 K-Sec market share stood at 2% (stable QoQ)
 Asset management business reported growth of 65.2% YoY in PAT at INR380m
while the average AUM increased 8.3% QoQ (+45.7% YoY) – led by strong
inflows in Equity AUM which grew 110% YoY
 Life insurance profit increased 42.6% YoY to INR 970m.
2
 Kotak Mahindra Bank

Exhibit 2: Auto loans grew 15% YoY Exhibit 3: Domestic AUM increased 37% YoY (+8% QoQ)
Debt Equity PMS
Auto Loans (INR b) Other Loans (INR b)
Offshore Funds Alternate assets Insurance

200
198
184
182
18 20 18 19 18 18 15 15 15 14 14 14 15 14 13 12 12

173
172
168
5 4 4 3
164 10 10 9 9 9 7 6 6 6 11 10 9 6 17 16 17 18

167
147
142

158
139

151
134

17
17 18 18 19 22 26 23 25 22 21 19 1 22 1 2 1 2
1 1 1 1 1 1 1
1 1 1 16 14 20 21 24 26

93
6 6 7 9 1 1 14

88
14 14 14 15

85
10 12

70
62
61
56
54

54
51

50
49
48

47
43

48 45 47 43 40
36 41 39 42 39 41 43 42 43 44 42 39

1HFY17

1HFY18
1HFY15

1HFY16

FY17

9MFY18
FY15

9MFY16
FY16

9MFY17
9MFY14
FY14

9MFY15

1QFY18
1QFY15

1QFY16

1QFY17
1HFY17

1HFY18
1HFY15

1HFY16

9MFY17
FY17

9MFY18
9MFY15
FY15

9MFY16
FY16

1QFY18
1QFY15

1QFY16

1QFY17

Source: MOSL, Company Source: MOSL, Company

Exhibit 4: K-Sec: PAT grew 81% YoY to 1.54b Exhibit 5: K-Sec market share improved marginally
Tot. Inc. PAT PATM (%) 2.9 2.9
2.8
34 2.7 2.7 2.7 2.7
33 33 33 34 34 2.6
30 29 30 2.4
27 29 25 2.3
24 23 2.2 2.2
3.7

4.5
2.9

2.7
2.2
2.2

3.7
2.5
2.2

3.5

2.0
2.9
2.3
2.3

2.9

1.9 1.9
2.4

1.5
0.7
0.7
0.6
1.0
0.7
0.8
0.6
0.5
0.6
1.0
0.9
1.2
1.3
1.2

1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18

Source: MOSL, Company Source: MOSL, Company

Exhibit 6: Investment banking earnings trend (INRm) Exhibit 7: Kotak AMC: Equity AUMs trending higher (INRb)
Eq. AUM 469
Tot Inc. PAT 406
760

PMS AUM
Offshore AUM 320 329
520

520

293 283 288

240
360
360

244
340

210 217 211 215 211 205

300

290
280

270
260
250

186
210

157
170

150

240
130
120

110
110

120 125 132 134 134 143

60

50

97 166 193
30

71
47 59 30 36
13 14 17
2QFY18 -10
1QFY15 -40

3QFY15-60
2QFY15-70

1HFY17

1HFY18
1HFY15

1HFY16

9MFY17
FY17

9MFY18
9MFY15
FY15

9MFY16
FY16

1QFY18
1QFY15

1QFY16

1QFY17
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18

3QFY18

Source: MOSL, Company Source: MOSL, Company

20 January 2018 3
 Kotak Mahindra Bank

3QFY18 Conference call highlights

Balance Sheet and P&L Related
 Outlook for the NIM: Revenue growth is lagging loan growth for most of the
banks due to pressure on yields due to excess liquidity (between April to
December, there was surplus liquidity flowing into mutual funds, debt funds,
and thus, there were pressure on yields). As of now, liquidity is getting tighter;
wholesale funding gets dried out, and that is where CASA will come into play;
Pressure on NIMs will continue; LCR regime has moved to 90% from this quarter
onwards, and therefore, banks had to keep higher buffer in Q3; there is a cost
attached to for this, and therefore, there will be pressure on NIMs going
forward.
 CASA outlook: 6% interest rates costs the bank INR1000cr annually on the PBT
level, but the bank has no plans to change the rates, as 6% interest rates is
gaining good traction and bank can leverage the customer base to cross sell.
 Cross-selling: Bank is focusing on customer-centric cross-selling on the asset
side of the balance sheet through digital means; the bank is in very early stage
for this sort of cross-selling. ~50% of distribution of insurance business and AMC
business comes from the bank’s customers and rest by other distributors. For
the securities business, 40% of customers come from the bank’s customers.
 On SME lending: Bank hasn’t seen any significant changes in the working capital
requirement post GST, as a lot of customers are still adjusting to the GST
requirements.
 Weighted avg. cost of SA for this quarter is 5.58%.
 Thoughts on Rural India: Tractor financing sales and CV financing portfolio have
shown healthy growth.
 Launched credit card this quarter.
st
 Effective 1 January, MCLR raised by 5bp.
 30% of the book on fixed rate and MCLR is 70%.
 Last 3 quarters have seen a lot of slippages from the SME sector, and therefore,
risk underwriting practices have improved, but slippages have bottomed out in
the SME book. Bank will do segmental lending in the SME space going forward.
 Cost/Income ratio 47% - CI ratio is improving and the income size continues to
grow; cost doesn’t give a clear picture (between operational and others).
 Slippages during the quarter were lesser than recoveries. Therefore, net
reduction in absolute GNPA.

Other Business Updates

 Improving but challenging macro: a positive for Kotak Bank for loan growth: 20%
loan growth is very much sustainable.
 Securities business, Investment Banking, AMC, Life insurance subsidiaries are
doing pretty good. 80% YoY PAT growth for this business. Constitutes about 23%
of the total PAT (at consol. level).
 Kotak Prime: 70% of the business constitutes of car financing.

20 January 2018 4
 Kotak Mahindra Bank

Exhibit 8: One year forward P/E Exhibit 9: One year forward P/B
P/E (x) Avg (x) Max (x) P/B (x) Avg (x) Max (x)
65.0 Min (x) +1SD -1SD Min (x) +1SD -1SD
6.1
50.3 5.3
50.0
4.7
3.6
35.0 29.5 3.3 2.9
25.1 3.8
22.5 2.2
20.0 15.6 1.9
1.1
7.2
5.0 0.5
Jul-10

Jul-15

Jul-10

Jul-15
Apr-09

Apr-14

Apr-09

Apr-14
Jan-08

Jan-13

Jan-18

Jan-08

Jan-13

Jan-18
Oct-11

Oct-16

Oct-11

Oct-16
Source: Company, MOSL Source: Company, MOSL

Maintain Buy with a TP of Valuation and view

INR1,220 (3.8x Mar-20E BV)  The share of bank in consolidated profits now stands at ~65% (69% in 2QFY18)
and we expect this to increase further as synergy benefits show up fully in FY18.
 Strong presence across products and healthy capitalization (Tier1 of ~18%),
places the bank in a sweet spot to capitalize on growth opportunities and gain
market share.
 Emerging opportunities for mid-size private banks post demon coupled with
healthy capitalization leaves KMB in a strong position to capitalize. To leverage
on its geographical expansion, the management is focusing on product
penetration with higher emphasis on agriculture (will help in priority sector
loans), small business loans (untapped opportunity; creating niche for itself) and
mortgage loan.
 Operating leverage is expected to kick in the expanded underutilized capacity.
Higher refinancing opportunities, increased product offering on the combined
network, customer acquisition through 811,cross ell to existing customers and
product penetration to eIVBL customers, will keep loan growth healthy. On a
lower base we are factoring loan CAGR of ~22% over FY17-20E. We expect PPoP
CAGR of ~25% over FY17-20E, largely driven by stable/marginally decline in
margins and operating leverage. Comfort on asset quality remains high with no
SDR/5:25, negligible SMA2 (19bp) and OSRL (4bp).
 Capital light nature of capital market and asset management businesses can
provide upside to ROE if there is a strong improvement in business cycle. Green
shoots of the same are visible post demon. We expect consolidated ROEs to
improve to ~15-17% by FY20e on back strong improvement in banking business .
 Backed by higher capitalization, diversified business loan book, strong under
writing practices and presence across financial services KMB historically traded
at a premium multiples to peers despite relatively lower ROE. We are positive
on the business with the expected operating leverage from eIVBL. We expect
KMB to deliver ~25% earnings CAGR over FY17-20E led by revival in loan growth
and controlled opex. At our SOTP of INR1,220 KMB will trade at 3.8x FY20E
Consolidated BV. Maintain Buy.

20 January 2018 5
 Kotak Mahindra Bank

Exhibit 10: Kotak Mahindra Bank (FY20-based)

Value Value INR per % To
(INR B) (USD B) share Total Rationale
Lending Business 1,970 30.8 1,034 85
Kotak Mahindra Bank 1,706 26.7 896 73 3.8x FY20E Net Worth
Kotak Prime (Car and other loans) 197 3.1 104 8 3x FY20E Net Worth
Kotak Investment Company (LAS) 66 1.0 35 3 3x FY20E Net Worth
Asset Management Business 128 2.0 61 5 5% of AUMs
Capital Markets related Business 173 2.7 89 7
Kotak Securities 161 2.5 85 7 20x FY20E Earnings
Kotak Investment Banking (KMCC) 12 0.2 6 1 3x FY20E Free Networth
Kotak Life Insurance 144 2.2 83 7
Subs value @ 20% discount 89 1.4 47 4
Target Value 2,326 36.3 1,220 100
Current market cap. 2,019 31.5 1,060
Upside (%) 15 15 15
Source: MOSL

Exhibit 11: KMB Group: Earnings Estimates (INR m)

FY14 FY15E FY16 FY17 FY18E FY19E
Kotak Mahindra Bank (Standalone) 21,603 24,776 20,898 34,115 42,442 53,460
Kotak Mahindra Prime 4,907 5,077 5,025 5,150 6,150 7,013
Kotak Mahindra Investments 420 1,060 1,540 1,960 2,461 3,604
Lending Business 26,930 30,913 27,463 41,225 51,053 64,077
International subsidiaries 70 520 1,050 860 1,085 1,342
Kotak Mahindra AMC & Trustee Co 410 -290 720 560 1,163 1,453
Kotak Investment Advisors 180 250 50 125 0 0
Asset Management Business 660 480 1,820 1,545 2,248 2,795
Kotak Securities 1,600 2,900 2,510 3,610 5,725 6,533
Kotak Mahindra Capital Company 140 130 320 460 490 677
Capital Market Business 1,740 3,030 2,830 4,070 6,216 7,210
Consol. PAT excluding Kotak Life 29,330 34,423 32,113 46,840 59,515 74,081
YoY Growth (%) 12 17 -7 46 27 26
Kotak OM Life Insurance 2,390 2,290 2,510 3,030 4,091 4,704
Consolidation Adjust. -492 -142 -34 -466 -1,262 -200
Consol. PAT Including Kotak Life 31,228 36,571 34,589 49,404 62,344 79,084
YoY Growth (%) 11 17 -5 43 26 27
Source: Company, MOSL

20 January 2018 6
 Kotak Mahindra Bank

Exhibit 12: Valuation Matrix

66Rating MCap CMP TP EPS (INR) ABV (INR) RoA (%) RoE (%) P/E (x) P/ABV (x)
FY20E (INRb) (INR) (INR) FY19E FY20E FY19E FY20E FY19E FY20E FY19E FY20E FY19E FY20E FY19E FY20E
Private Banks
ICICIBC* Buy 2,218 354 370 17.0 21.8 122 141 1.20 1.35 10.5 12.4 14.7 11.5 2.0 1.8
HDFCB Buy 4,950 1,951 2,150 84.7 105.4 422 504 1.92 1.98 20.4 21.4 23.0 18.5 4.6 3.9
AXSB Buy 1,398 590 680 30.8 40.2 241 290 1.07 1.21 10.8 12.7 19.2 14.7 2.5 2.0
KMB* Buy 1,918 1,060 1,179 41.6 51.9 272 323 1.95 2.03 16.5 17.4 25.5 20.4 3.9 3.3
YES Buy 777 348 410 23.9 30.8 125 151 1.73 1.78 19.9 21.5 14.6 11.3 2.8 2.3
IIB Buy 1,004 1,683 2,076 78.9 101.4 437 522 1.89 1.93 19.1 20.7 21.3 16.6 3.9 3.2
IDFCB Neutral 197 59 65 3.2 3.9 46 48 0.79 0.87 6.9 7.9 18.2 14.9 1.3 1.2
FB Buy 176 103 149 6.5 8.2 62 69 0.84 0.89 9.8 11.3 15.8 12.6 1.7 1.5
DCBB Neutral 57 189 188 9.0 10.9 91 102 0.86 0.87 10.4 11.3 21.0 17.3 2.1 1.9
JKBK Buy 40 76 100 13.4 17.2 60 84 0.68 0.75 12.3 14.2 5.7 4.4 1.3 0.9
SIB Buy 58 32 38 3.8 4.9 26 30 0.76 0.87 12.7 14.8 8.5 6.5 1.2 1.1
EQUITAS Buy 51 155 209 5.7 9.9 69 77 1.57 1.99 8.2 12.8 27.0 15.7 2.3 2.0
RBK Buy 197 525 665 22.6 30.2 169 192 1.32 1.31 13.7 16.1 23.2 17.4 3.1 2.7
PSU Banks
SBIN* Buy 2,613 309 415 19.6 34.9 205 243 0.49 0.80 8.0 13.1 10.6 5.9 1.0 0.9
PNB Buy 363 176 250 18.9 24.1 124 165 0.47 0.54 9.0 10.4 9.3 7.3 1.4 1.1
BOI Neutral 169 165 175 4.9 10.3 147 191 0.08 0.15 1.8 3.6 33.5 16.1 1.1 0.9
BOB Buy 375 166 217 22.6 29.7 143 173 0.52 0.60 9.4 10.9 7.3 5.6 1.2 1.0
CBK Neutral 189 362 366 67.8 99.7 328 460 0.62 0.82 11.3 14.7 5.3 3.6 1.1 0.8
UNBK Neutral 95 141 153 29.4 45.0 155 203 0.41 0.56 9.1 12.6 4.8 3.1 0.9 0.7
INBK Buy 181 381 438 38.3 42.3 273 306 0.72 0.69 11.2 11.3 9.9 9.0 1.4 1.2
Life Insurance
HDFCLIFE** Buy 747 372 370 5.4 6.7 3.4 3.5 19.1 19.1 69.3 55.3
Source: Company, MOSL

20 January 2018 7
 Kotak Mahindra Bank

Financials and valuations

Income Statement (INR Million)
Y/E March 2013 2014 2015 2016 2017 2018E 2019E 2020E
Interest Income 129,041 139,722 155,677 163,842 176,989 205,263 249,876 303,413
Interest Expense 81,598 84,991 93,876 94,838 95,728 108,007 129,280 154,813
Net Interest Income 47,443 54,731 61,800 69,004 81,261 97,256 120,596 148,600
Change (%) 27.5 15.4 12.9 11.7 17.8 19.7 24.0 23.2
Non Interest Income 18,875 22,668 29,119 26,122 34,772 40,022 46,626 54,552
Net Income 66,318 77,399 90,919 95,126 116,033 137,278 167,221 203,152
Change (%) 23.5 16.7 17.5 4.6 22.0 18.3 21.8 21.5
Operating Expenses 34,825 40,353 48,711 54,715 56,185 64,343 74,946 87,439
Pre Provision Profits 31,493 37,046 42,208 40,411 59,848 72,936 92,276 115,713
Change (%) 30.0 17.6 13.9 -4.3 48.1 21.9 26.5 25.4
Provisions (excl tax) 2,758 4,545 4,723 9,174 8,367 8,434 11,029 13,792
PBT 28,735 32,501 37,486 31,237 51,481 64,502 81,246 101,921
Tax 8,998 10,898 12,710 10,339 17,366 22,060 27,786 34,857
Tax Rate (%) 31.3 33.5 33.9 33.1 33.7 34.2 34.2 34.2
PAT 19,737 21,603 24,776 20,898 34,115 42,442 53,460 67,064
Change (%) 28.0 9.5 14.7 -15.7 63.2 24.4 26.0 25.4
Extra Ordinary Item 0 0 0 0 0 0 0 0
Adjusted PAT 19,737 21,603 24,776 20,898 34,115 42,442 53,460 67,064
Change (%) 28.0 9.5 14.7 -15.7 63.2 24.4 26.0 25.4
Consolidated PAT (incl VYSB) 28,014 31,228 36,571 34,589 49,404 62,344 79,084 103,244
Change (%) 22.4 11.5 17.1 -5.4 42.8 26.2 26.9 30.5

Balance Sheet (INR Million)

Y/E March 2013 2014 2015 2016 2017 2018E 2019E 2020E
Share Capital 3,733 3,852 9,116 9,172 9,204 9,522 9,522 9,522
Equity Share Capital 7,466 7,703 7,724 9,172 9,204 9,522 9,522 9,522
Reserves & Surplus 144,646 197,401 211,405 230,453 266,975 355,677 395,039 448,004
Net Worth 148,379 201,253 220,521 239,625 276,179 365,199 404,561 457,527
Of which Equity Networth 148,379 201,253 220,521 239,625 276,179 365,199 404,561 457,527
Deposits 923,628 1,002,891 1,240,148 1,386,430 1,574,258 1,873,368 2,287,382 2,772,307
Change (%) 25.3 8.6 23.7 11.8 13.5 19.0 22.1 21.2
of which CASA Dep 283,534 325,865 412,995 527,764 692,646 889,850 1,123,105 1,394,470
Change (%) 16.0 14.9 26.7 27.8 31.2 28.5 26.2 24.2
Borrowings 269,219 225,641 205,411 209,753 234,269 255,787 305,095 359,549
Other Liabilities & Prov. 47,809 54,053 67,119 86,790 85,836 101,408 121,690 146,028
Total Liabilities 1,389,034 1,483,837 1,733,198 1,922,598 2,170,542 2,595,763 3,118,728 3,735,410
Current Assets 65,226 118,060 97,457 108,797 225,720 142,653 173,696 209,834
Investments 471,517 422,053 513,313 512,602 450,742 676,730 773,261 905,975
Change (%) 37.5 -10.5 21.6 -0.1 -12.1 50.1 14.3 17.2
Loans 802,410 888,565 1,069,718 1,186,653 1,360,821 1,661,563 2,050,368 2,491,198
Change (%) 18.3 10.7 20.4 10.9 14.7 22.1 23.4 21.5
Fixed Assets 9,640 16,315 16,204 15,516 15,376 16,914 18,605 20,466
Other Assets 36,508 34,994 36,507 99,030 93,240 97,902 102,797 107,937
Total Assets 1,385,301 1,479,986 1,733,198 1,922,598 2,145,900 2,595,763 3,118,728 3,735,410

Asset Quality (%)

Y/E MARCH 2013 2014 2015 2016 2017 2018E 2019E 2020E
GNPA (INR m) 13,283 17,037 22,884 28,381 35,786 37,496 40,073 45,282
NNPA (INR m) 3,205 6,756 10,722 12,620 17,181 17,376 16,693 17,243
GNPA Ratio 1.63 1.90 2.12 2.36 2.59 2.26 1.95 1.82
NNPA Ratio 0.40 0.76 1.00 1.06 1.26 1.05 0.81 0.69
Slippage Ratio 0.97 1.58 2.51 2.68 1.51 1.35 1.25 1.20
Credit Cost 0.33 0.27 0.62 0.63 0.48 0.48 0.50 0.52
PCR (Excl Tech. write off) 75.9 60.3 53.1 55.5 52.0 53.7 58.3 61.9
PCR (Incl Tech. Write off) 98.4 0.0 0.0 0.0 0.0

20 January 2018 8
 Kotak Mahindra Bank

Financials and valuations

Ratios
Y/E March 2013 2014 2015 2016 2017 2018E 2019E 2020E
Spreads Analysis (%)
Avg. Yield-Earning Assets 11.0 10.5 10.5 9.8 9.6 9.1 9.1 9.2
Avg. Yield on loans 13.1 12.4 12.0 11.1 10.5 8.9 8.5 8.5
Avg. Yield on Investments 7.8 7.7 7.7 6.7 7.6 7.5 7.4 7.3
Avg. Cost-Int. Bear. Liab. 7.6 7.0 7.0 6.2 5.6 5.5 5.5 5.4
Avg. Cost of Deposits 7.1 6.8 6.8 6.0 5.6 5.4 5.4 5.4
Interest Spread 3.5 3.5 3.4 3.5 3.9 3.4 3.1 3.1
Net Interest Margin 4.1 4.1 4.2 4.1 4.4 4.3 4.4 4.5

Profitability Ratios (%)

RoE 14.8 12.7 11.9 9.1 13.2 11.6 13.2 14.7
RoA 1.6 1.5 1.5 1.1 1.7 1.6 1.7 1.8
Consolidated ROE 15.0 13.4 13.0 10.9 13.8 13.2 14.3 15.8

Other Ratios (%)

Int. Expense/Int.Income 63.2 60.8 60.3 57.9 54.1 52.6 51.7 51.0
Fee Income/Net Income 25.7 26.2 28.4 25.2 26.2 25.9 25.1 24.5
Non Int. Inc./Net Income 28.5 29.3 32.0 27.5 30.0 29.2 27.9 26.9
Cost/Income 52.5 52.1 53.6 57.5 48.4 46.9 44.8 43.0
Empl. Cost/Op. Exps. 52.4 51.4 48.9 51.5 49.3 49.5 49.7 49.4
Busi. per Empl. (Rs m) 68.4 71.0
NP per Empl. (Rs lac) 0.9 0.8
* ex treasury
Asset-Liability Profile (%)
Loans/Deposit Ratio 86.9 88.6 86.3 85.6 86.4 88.7 89.6 89.9
CASA Ratio 30.7 32.5 33.3 38.1 44.0 47.5 49.1 50.3
Investment/Deposit Ratio 51.1 42.1 41.4 37.0 28.6 36.1 33.8 32.7
G-Sec/Investment Ratio 72.3 66.3 67.9 79.5 80.2 80.3 80.3 80.3
CAR 16.0 18.8 17.2 16.3 16.8 17.5 15.8 14.7
Tier 1 14.7 17.8 16.2 15.3 15.9 16.9 14.9 13.7

Valuation
Standalone Book Value (INR) 65.8 82.2 120.4 130.6 150.0 191.8 212.4 240.2
Change (%) 8.5 14.8 27.8 10.8 13.1
Price-BV (x) 15.2 12.2 10.8 9.9 8.6 5.5 5.0 4.4
Consolidated BV (INR) 104.6 126.3 164.5 181.9 207.7 248.9 289.6 342.9
Change (%) 10.5 14.2 19.9 16.3 18.4
Price-BV (x) 6.4 5.8 5.1 4.3 3.7 3.1
Consolidated EPS (INR) 14.7 16.0 20.1 18.9 26.8 32.7 41.5 54.2
Change (%) -6.0 42.3 22.0 26.9 30.5
Price-Earnings (x) 52.8 56.2 39.5 32.4 25.5 19.6

20 January 2018 9
 Kotak Mahindra Bank

Corporate profile
Exhibit 1: Sensex rebased
Company description
Kotak Mahindra Bank (KMB) is part of the larger
Kotak Mahindra Group led by Mr. Uday Kotak,
Founder and Managing Director of the Bank. The
group has a strong presence across financial
services value chain. Notably, KMB is the only bank
in India’s corporate history to be converted into a
bank from a non-banking finance company. The
bank has pan-India presence with 1,333 branches
and 2,032 ATMs as on March 31, 2016. In 2015,
KMB merged with EIVBL in an all-stock deal. Source: MOSL/Bloomberg

Exhibit 2: Shareholding pattern (%) Exhibit 3: Top holders

Dec-17 Sep-17 Dec-16 Holder Name % Holding
Promoter 30.1 30.1 33.6 Canada pension plan investment board 6.1
DII 9.0 8.5 8.5 Europacific growth fund 4.9
FII 39.4 39.9 36.8 ING Mauritius investments i 3.7
Others 21.6 21.6 21.1 Sumitomo Mitsui banking corporation 1.7
Note: FII Includes depository receipts Source: Capitaline Capital world growth and income fund 1.6
Source: Capitaline

Exhibit 4: Top management Exhibit 5: Directors

Name Designation Name Name
Shankar Acharya Chairman Amit Desai N P Sarda
Dipak Gupta Joint Managing Director Prakash Apte C Jayaram
Uday Kotak Executive Vice Chairman & MD Farida Khambata Mark Edwin Newman
Bina Chandarana Company Secretary S Mahendra Dev Uday Chander Khanna

Source: Capitaline *Independent

Exhibit 6: Auditors Exhibit 7: MOSL forecast v/s consensus

Name Type EPS MOSL Consensus Variation
(INR) forecast forecast (%)
S R Batliboi & Co LLP Statutory
FY18 32.7 25.0 30.7
FY19 41.5 30.9 34.3
FY20 54.2 38.6 40.4
Source: Bloomberg

Source: Capitaline

20 January 2018 10
 Kotak Mahindra Bank

NOTES

20 January 2018 11
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Disclosure of Interest Statement Kotak Mahindra Bank
Analyst ownership of the stock No
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