Kotak Mahindra Bank – Stock Analysis|Q2FY21 Result Analysis

Kotak Mahindra Quarterly Results Analysis

Introduction

Recently, Kotak Mahindra Bank declared its Q2FY21 results. Profitability of the company grew ~26.3% YoY and Net Interest Income (NII) grew by 16.8% YoY. Let us do a quarterly results analysis of the bank in this blog.

Disclaimer: We have this company in our model portfolios.

Kotak Mahindra Bank Q2FY21 Results Analysis

Revenue and Profitability

• Bank’s loan book has declined YoY and hence Interest income growth is flat. However the declining interest rates are beneficial for lowering the interest expenditure by ~14% YoY.
• This has resulted in healthy growth in bank’s Net Interest Income (NII).
• Also, robust growth in non-interest income has resulted in total income growing at 17.3% despite muted growth in core interest income.
• Operating expenses of the bank have remained flat on YoY basis and increased 10.3% on QoQ basis. This shows that bank is maintaining its overhead expenses efficiently.
• Overall cost reduction and lower operating expenses have resulted in bank’s pre-provisioning operating profit showing a robust growth of 31.4% YoY and 25.6% QoQ
• Although the moratorium period is over, as per hon. Supreme Court’s order banks are asked to not declare the bad loans from moratorium period into NPAs yet.
• This is the reason that Kotak Bank has not taken any significant provisions in this quarter, which has resulted in COVID related provisions declining by 98% QoQ. Other contingencies of Kotak Bank have declined by 10% YoY.
• Lower provisions and higher operating profits have resulted in robust growth in PBT (39.4% YoY). Net Profit has also registered a healthy growth of 26.7% YoY.

Asset Quality

• Bank’s Gross Non- performing Assets (GNPA) and Net Non- Performing Assets (NNPA) have increased on YoY and QoQ basis.
• However, these are proforma NPAs, there is a possibility that these NPAs can increase for the next 2-3 quarters.
• Also, currently bank has healthy provision coverage ratio of 71.4%.

What does Kotak Mahindra Bank’s Capital Adequacy Ratio indicates?

• Kotak Mahindra Bank is increasing its CAR consistently over the last few quarters.
• This indicates promoter, Mr Uday Kotak’s conservative stance where he is trying to keep the bank well capitalized to shield from the possibility of upcoming surge in NPAs from moratorium period.
• The conservative stance of the bank is also evident from the bank’s cost cutting measures.