Earnings Outlook
Fall in NIM, high opex to weigh on Kotak Bank's PAT
This story was originally published at 18:22 IST on 16 July 2024
Register to read our real-time news.Informist, Tuesday, Jul 16, 2024
By Kshipra Petkar
MUMBAI – A moderation in margins, rise in operating expenditure and fall in asset quality is likely to keep Kotak Mahindra Bank's net profit muted in the quarter ended June. The private sector bank's net profit is seen falling by over 10% from a quarter ago to 39.82 bln rupees in Apr-Jun, according to an average of estimates by nine brokerage firms. However, from a year ago, the net profit is seen rising 6.7%.
The estimates on net profit of the bank range from 33.69 bln rupees to 41.30 bln rupees. The bank will announce its earnings for Apr-Jun on Saturday.
The net interest income of the bank is expected to rise 13.3% from a year ago to 70.61 bln rupees, as per the average of the estimates. Sequentially, the net interest income is seen rising 2.2%. The estimates on net interest income of the bank for the quarter range from 68.89 bln rupees to 71.82 bln rupees.
"NII (net interest income) growth will be slightly slower than average loan growth due to the rise in cost of deposits outpacing yield on advances," YES Securities said in a pre-earnings report.
Emkay Global expects net interest margins to moderate by 18 basis points from a quarter ago, while Prabhudas Lilladher sees it falling by 16 bps. "We expect sharp margin contraction due to lower LDR (loan-to-deposit ratio). Need to see if the bank shores up its contingent provision buffer, as it still remains an irritant," Emkay Global said in a report.
According to Nuvama Institutional Equities, the loan-to-deposit ratio of the bank is seen at 85% during the quarter. Nomura has projected the loan and deposit growth of the bank at 18% and 20% on year, respectively, as of Jun 30. As of Mar 31, the bank's total loans rose 20% on year to 3.9 trln rupees and deposits rose 24% to 4.49 trln rupees.
On asset quality, Emkay Global expects the gross non-performing ratio of the bank to rise marginally due to seasonal factors and stress on loans to the agriculture sector. The brokerage has pegged the gross NPA ratio at 1.4% for the bank. Around 14% of the bank's gross advances are to the agriculture sector as of Mar 31, according to the brokerage.
In the previous quarter, the gross non-performing asset ratio of the bank fell to 1.39% from 1.73% a quarter ago and 1.78% a year ago. The net NPA ratio, on the other hand, remained stable at 0.34%, unchanged from the previous quarter but lower than 0.37% a year ago.
Provisions are likely to be significantly higher on a sequential basis as the bank had written bank provisions of 1.57 bln rupees related to investments in alternate investment funds in Jan-Mar, YES Securities said. This came after the Reserve Bank of India in March diluted its norms on investment in alternative investment funds. As per the diluted norms, provisioning will be required only to the extent of investment by the lender in the alternative investment funds scheme, which is further invested by the fund in the debtor company of a regulated entity.
In December, the central bank had given 30 days to lenders to liquidate their investment in alternative investment fund schemes that, in turn, invest in debtor companies of the entities, or make 100% provision on such investments. The bank had made provisions of 1.9 bln rupees for investments in alternate investment funds in Oct-Dec.
Analysts will keenly watch the bank management's outlook on loan and deposit growth and the developments on the digital onboarding ban imposed by the RBI. The RBI in April asked Kotak Mahindra Bank to stop onboarding new customers through its online and mobile banking channels and issuing new credit cards based on concerns following an inspection of the bank's information technology system.
Today, shares of Kotak Mahindra Bank fell 2.1% to 1805.30 rupees on the National Stock Exchange.
Following are the standalone Apr-Jun earnings estimates for Kotak Mahindra Bank, in mln rupees, based on reports from nine brokerages:
| Brokerage | Net Interest Income (in mln rupees) | Net Profit (in mln rupees) |
| Anand Rathi Share and Stock Brokers Ltd | 71,809.00 | 38,109.00 |
| Emkay Global Financial Services Ltd | 70,646.00 | 36,731.00 |
| Motilal Oswal Financial Services Ltd | 71,200.00 | 35,900.00 |
| Nirmal Bang Equities Pvt Ltd | 70,679.00 | 37,028.00 |
| Nomura Equity Research | 69,600.00 | 36,000.00 |
| Nuvama Wealth Management Ltd | 70,800.00 | 41,300.00 |
| Prabhudas Lilladher Pvt Ltd | 68,888.00 | 33,795.00 |
| Sharekhan Ltd | 70,040.00 | 33,690.00 |
| YES Securities (India) Ltd | 71,818.00 | 38,834.00 |
| Average | 70,608.89 | 36,820.78 |
End
Edited by Saji George Titus
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