Kotak Mahindra Bank Q1 Results Review - Weak Performance On Margin Decline, Higher Credit Costs: Systematix

Systematix Research Report

Kotak Mahindra Bank reported Q1 FY25 PAT of Rs 35.2 billion (ex one-off gains of Rs 27.3 billion from 70% stake sale in Kotak General Insurance) which increased by 2% QoQ (-14% YoY). Overall, earnings were lower than estimates due to margin decline QoQ along with higher credit costs.

Other key highlights were:

1. Gross Advances (net of IBPC/BRDS) growth of 3.7% QoQ, 19% YoY was led by corporate banking growth (net of IBPC/BRDS) of 8% QoQ, 12% YoY. Weak growth of 2% QoQ in unsecured credit (personal loan, business loan, consolidtaed durables credit cards, MFI),

2. Deposit growth was flattish QoQ, +16% YoY as CASA declined by -5% QoQ (+3% YoY),

3. Reported NIM (5.02%, -26 bps QoQ) declined sequentially due to higher funding costs QoQ due to CASA decline and lower assets yields on adverse mix.

4. Other income declined by -1.7% QoQ (+9.2% YoY) due to seasonally lower fee income.

5. Opex/assets also reduced to 3% (-8 bps / -16 bps QoQ/YoY), it is likely to remain around the current levels in the near to medium term as the bank plans to increase the branch opening frequency to 150-200 branches per year (168 / 80 new branches in FY24/FY23).

6. Net slippage ratio increased to 0.81% versus 0.58% in Q4 FY24 and 0.63% in Q1 FY24 and reported credit costs increased to 55 bps versus 42 bps QoQ due to seasonality and stress in small ticket loans on overleveraging.

7. Consolidated return on asset /return on equity of 2.3% / 13.12% (ex gains on stake sale in Kotak general insurance).

Kotak Mahindra Bank recorded gains (net of tax) on divestment of stake in Kotak General Insurance of Rs 30 billion on consolidated basis and Rs 27.3 billion on standalone basis.

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