Kotak Mahindra Bank Q2 takeaways: Profit on growth path again, outlook improves

Private lender Kotak Mahindra Bank on Monday reported profit growth of nearly 27 per cent year-on-year (YoY) after witnessing a drop in the previous two quarters. The lender saw a fall of 8.51 per cent YoY in June quarter and 10 per cent in the March quarter.

Shares of the bank, which have declined 17 per cent year-to-date, recovered marginally to an intraday high of Rs 1,382.85 from the day’s low of Rs 1,347.75. However, the scrip was still trading 0.97 per cent down at Rs 1,369.60 against the previous close of Rs 1,383.05 at around 2.15 pm (IST).

Here are key takeaways from earnings:

Net interest income (NII): The figure, which is the difference between the interest income a bank earns from its lending activities and the interest it pays to depositors, stood almost in line with the previous three quarters. NII gained 17 per cent YoY to Rs 3,913 crore in Q2. The figure grew by around 18 per cent, 17 per cent and 17 per cent in the preceding three quarters. The figure, however, increased 25 per cent YoY for the quarter ended September 2019.

Cost control boosts PPP: Pre-provision operating profit (PPP) of the lender increased by 31.40 per cent YoY and 25.7 per cent QoQ to Rs 3,297.50 crore, aided by control of costs and higher other income. Total expenditure declined to Rs 4,990 crore from Rs 5,477 crore. On the other hand, other income increased to Rs 1,452 crore from Rs 1,224 crore YoY.

Improved outlook: Provisions came much lower at Rs 368.59 crore, down 62 per cent QoQ and 9.64 per cent YoY. Covid-related provisions stood at Rs 1,279 crore (0.62 per cent of net advances) on September 30. “Kotak Mahindra Bank’s management is known for its prudent and proactive stance on asset quality and provisions. Hence, lower provisions, along with a stable asset quality indicates improved outlook,” Sharekhan said.

Percentage of gross non-performing assets (GNPA) came at 2.55 per cent against 2.70 per cent on QoQ basis, indicating some improved in asset quality. Net NPA also declined to 0.64 per cent from 0.87 per cent QoQ.

“The bank has not recognised any NPAs since August 31, in line with the interim order of Hon. Supreme Court. If the said order was not given effect to, the GNPA would have been 2.70 per cent and NNPA 0.74 per cent,” Kotak Mahindra Bank said.

CASA and deposits: CASA ratio stood at 57.1 per cent, as compared to 53.6 per cent on September 30 last year. Average savings deposits grew by 32 per cent to Rs 1,06,442 crore during April-September 2020, against Rs 80,425 crore for the corresponding period last year. Average current account deposits grew by 10 per cent to Rs 36,610 crore for H1FY21 during the same period.

Analyst's take: Kotak reported a net profit of Rs 2,184 crore in Q2 against ET NOW analysts estimates of Rs 1,600 crore. Brokerage Sharekhan said Kotak Mahindra Bank posted a strong set of results. “Operational numbers came better than expectations. It also posted stable asset quality on a sequential basis,” the brokerage said.