Kotak Mahindra Bank Limited — Q2 FY25 earnings call

Call held 19 Oct 2024

Management summary

Kotak Mahindra Bank reported a strong Q2 FY25, with group profit after tax growing 13% YoY, driven by stellar performance in its Capital Markets, Asset Management, and Insurance subsidiaries. The Bank's deposits and assets showed robust growth despite the embargo, while maintaining a healthy CASA ratio. Management highlighted progress on technology, cautious approach in unsecured retail and microfinance due to some stress, and a positive outlook for H2 in certain segments.

Highlights

  • Group profit after tax for Q2 FY25 was 5,044 crore, up 13% year-on-year.

  • Capital Markets, Asset Management, and Insurance segments grew significantly at 52%, 58%, and 50% year-on-year respectively.

  • Bank deposits grew 16% year-on-year, and customer assets grew 18% year-on-year to 4,50,000 crore.

  • The CASA ratio stabilized at 43.6%, maintaining its industry-leading position.

  • Consolidated customer assets reached 5,10,000 crore, a 19% increase from the previous year.

  • Bank's standalone PAT was 3,344 crore, reflecting a 5% year-on-year growth.

  • Gross NPA stood at 1.49% and Net NPA at 0.43% as of September 30, 2024, with an annualized credit cost of 65 bps.

  • Kotak AMC's average AUM grew 41% YoY to Rs.4.7 trillion, and its total AUM market share increased to 7.1%.

What they filed

Q1 FY27: revenue up 6.4%, net profit up 22.5% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue16,427 16,633 16,772 17,248 17,199 +5%17,507 +5%17,827 +6%18,355 +6%
Net profit5,044 4,701 4,933 4,472 4,468 −11%4,924 +5%5,423 +10%5,480 +23%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Credit Quality

  • Credit Cost Improvement Credit Quality · next 3 to 6, 9 months · Medium confidence improvement
    we expect post Diwali that we will see a certain amount of recoveries particularly in the businesses that are linked to the rural parts of India and a improvement in credit costs in the next 3 to 6, 9 months in portfolios like credit cards.

    — Ashok Vaswani

  • Credit Cost Trend Credit Quality · next 2 or 3 quarters · Medium confidence stabilize and then come down
    So, my sense is that credit cost will more or less stabilize and then over the next 2 or 3 quarters actually come down.

    — Ashok Vaswani

  • Slippages in older book Credit Quality · next 2 or 3 quarters · Medium confidence play out
    So, hopefully that will hold up and some of the slippages in the older book will play themselves out... So, the fresh onboarding will be better and some of the pain in the older book will play out over the next 2 or 3 quarters.

    — Paul Parambi

Profitability

  • NIM improvement from SA rate cut Profitability · ongoing · High confidence 4 bps
    What is definitive today, which we have already declared, is the saving account rate cut which will add roughly about 4 bps improving the NIM margin.

    — Devang Gheewalla

  • Average Yield on Assets improvement from StanC deal Profitability · ongoing · High confidence couple of bps
    What we have already also announced is the Standard Chartered portfolio and unsecured book, which will also add about couple of bps to the average yield on the assets

    — Devang Gheewalla

Commercial Vehicles

  • Demand Commercial Vehicles · H2 · Medium confidence much better
    With the ongoing festival season and the anticipation of increased government spend, we expect H2 for the sector to be much better on demand.

    — Shanti Ekambaram

Tractor Finance

  • Demand, Cash Flow, Collection Efficiencies Tractor Finance · H2 · Medium confidence revival, improve, better
    With the above normal monsoon and expectation of the government's push on rural infra, we expect a revival of the tractor demand in H2. We also expect the cash flow in the rural and semi-urban areas to improve and hope to see better collection efficiencies in tractor in H2.

    — Shanti Ekambaram

Asset Quality

  • Provision Coverage Ratio Asset Quality · ongoing · High confidence about 70%
    to answer your second question, we are comfortable maintaining coverage ratio at about 70% on an average.

    — Devang Gheewalla

2 min read

Detailed narrative

Kotak Mahindra Bank delivered a robust performance in Q2 FY25, with the group reporting a profit after tax of 5,044 crore, marking a 13% year-on-year increase. This growth was significantly bolstered by its non-banking subsidiaries, with Capital Markets, Asset Management, and Insurance segments growing at 52%, 58%, and 50% YoY respectively. The Bank's standalone profit after tax stood at 3,344 crore, up 5% YoY, even as it navigated the full impact of the RBI embargo.

Despite the embargo, the Bank demonstrated strong underlying metrics, with deposits growing 16% YoY and customer assets expanding 18% YoY to 4,50,000 crore. The consolidated customer assets reached 5,10,000 crore, a 19% increase. The CASA ratio remained stable and industry-leading at 43.6%. However, the cost of funds increased by five basis points quarter-on-quarter, and NIM reduced by 11 bps to 4.91% due to a shift towards secured assets and the impact of the embargo on higher-yielding unsecured retail. The Bank's capital adequacy remains strong at 22.6% (consolidated) and 21.5% (CET-1 standalone).

Asset quality showed some mixed trends. Gross NPA was 1.49% and Net NPA was 0.43% as of September 30, 2024, with an annualized credit cost of 65 bps. Management noted some credit stress in the unsecured retail business, particularly credit cards, and in microfinance, attributing it to overleveraging in certain customer segments and slower rural economy. They expressed confidence that credit costs would stabilize and then come down over the next 2-3 quarters, aided by recoveries from rural and secured businesses.

Strategic initiatives included significant progress on technology and risk resilience, in line with RBI's directives, and the beta launch of a new customer-facing mobile app. The acquisition of Standard Chartered's personal loan portfolio was highlighted as a tuck-in strategy aligning with the affluent segment, expected to add a couple of basis points to the average yield on assets. The management also addressed the recent RBI draft circular on investments, stating they are analyzing its implications and will provide comments by November 20th. Overall, the management conveyed a bullish outlook, emphasizing the strength of Kotak as a financial conglomerate and its ability to adapt and grow.

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