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Kotak Mahindra Bank Ltd Q2 FY24 Earnings Conference Call Insights

Key highlights from Kotak Mahindra Bank Ltd (KOTAKBANK) Q2 FY24 Earnings Concall

  • Q2 Results
    • Net profit increased 24% year-over-year to INR4,461 crores.
    • NIM decreased to 5.22% from 5.34% last quarter due to certain one-offs of about 14-15 bps.
    • Advances grew 21% year-over-year; growth seen across most retail segments.
    • Asset quality improved with GNPA ratio declining to 1.78% from 2.08% last year.
    • Bank has healthy capital adequacy ratio of 21.7% with CET1 at 20.6%.
    • CASA ratio dropped to 53.6% in 2Q, a decrease of 70 bps, as customers shifted from savings to term deposits for better interest rates.
  • Macroeconomic Outlook
    • India growth story remains positive but global geopolitics warrant caution.
    • Inflation and resulting rate hikes will keep pressure on growth.
    • Tight liquidity likely to continue – growth versus NIM tradeoff better than growth versus credit growth currently.
  • Kotak Securities Update
    • Total income increased to INR962 crores versus INR776 crores last year.
    • Net profit grew 45% year-over-year to INR324 crores.
    • Combined market share increased from 5% to 8.8%.
    • 80% of futures and options volume is through Neo platform.
    • Total average AUM grew 18% Y-o-Y to INR3.36 trillion.
    • SIP inflows grew 22% Y-o-Y to INR10.2 billion in September.
    • Assets under management in mutual fund business grew 28% year-over-year.
  • Wholesale Banking
    • Reasonable credit demand from larger corporates and SMEs.
    • Focus on loans over low-yielding bonds in credit substitute book.
    • SME growth moderated due to competitive pressures affecting risk-reward metrics.
    • Overall corporate book remains healthy with negligible credit costs
  • Commercial Banking Performance
    • Commercial vehicle industry saw 7% Y-o-Y volume growth in Q2 but muted growth of 2% in H1.
    • Passenger vehicle segment continued strong growth of 33% Y-o-Y.
    • Tractor industry wholesale was down 6.6% Y-o-Y in Q2 due to uneven rainfall.
    • Microfinance business continued momentum with 65% Y-o-Y growth in disbursements.
    • Agri SME growth was muted due to commodity prices and demand
  • Kotak Alternate Assets Growth
    • Building platform across 6 asset classes, raising capital globally.
    • Data center fund made $72 million investment in Sify Infinit Spaces.
    • Raised $109 million for private credit fund.
  • Kotak Prime and Kotak Life Insurance Business Performance
    • Kotak Prime Q2 PAT at INR208 crores, same as Q1.
    • Demand slow at lower end cars, but SUV and premium segment growing.
    • Kotak Life Insurance Q2 PAT muted at INR247 crores.
    • Individual regular premium business saw slow growth.
  • NIM Declines And Outlook
    • NIM declined 15 bps sequentially due to CRR impact, higher liquidity buffer, short-term inflows invested at lower yields. These are unlikely to repeat at same levels.
    • Yield on advances stable, cost of deposits increased by 20 bps.
    • Repricing of deposits largely complete barring any external shocks. Expect maybe 1 more quarter of repricing impact.
  • Slippages And Recoveries
    • Slippages at INR1300 crore, dominated by retail segment.
    • Total recoveries and upgrades at INR900 crore including the INR300 crore.
    • Recovery and upgrades about 60-65% of slippages, in line with trends in retail portfolio.
  • Growth Trends Across Segments
    • Growth driven more by advances vs credit substitutes now. Mix changing favorably.
    • Corporate growth is increasing, led by asset growth and profitability, not deposit growth or size.
    • Home loans are slowing due to pricing/spread compression, but combined growth with LAP is strong.
    • Product mix management continues based on optimizing growth and profitability.
  • Margin Outlook
    • Sharp fall in margins this quarter was partly due to one-off yield drag of 14-15 bps which is unlikely to repeat.
    • 70% of loan book is floating rate linked to repo or MCLR so limited upside from repricing.
    • Bank aims to remain highest NIM in industry; sharpness of margin decline not likely to continue.
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