*STOCK OF THE WEEK* ● Company Profile ● Key Highlightes ● Organisation Performance ● Investment Rational ● Q1 FY 2020 Highlights

1. 14 SEPTEMBER
STOCK
WEEK
OF THE
2019
KOTAK MAHINDRA BANK

2. 1
SUN PHARMA LTD.
14 SEPTEMBER
COMPANY SHAPSHOT
PROMOTORS 29.98
INSTITUTIONS 52.96
MF HOLDING 8.44
FII HOLDING 40.52
SHARE HOLDING PATTERN
NSE CODE KOTAKBANK
BSE CODE 500247
CMP 14 SEP 2019 1483.55
EQUITY CAPITAL 954.67 CR
FACE VALUE Rs. 5.00
EQ SHARE O/S 190.98 CR.
MARKET CAP 283,464 CR
BOOK VALUE 224.62
AVG 52 WEEK
VOLUME
1685321
52 WEEK HIGH 1555.90
52 WEEK LOW 1002.20
COMPANY PROFILE
KMBL is the flagship company of the Kotak group and has diversified
operations covering commercial vehicle financing, consumer loans,
corporate finance, and asset reconstruction. Through its
subsidiaries, the bank is engaged in investment banking, equity
broking, securities-based lending, and car finance. KMBL was
reconstituted as a commercial bank from a non-banking financial
company (NBFC) in fiscal 2003 to provide a more comprehensive
range of financial services. Effective April 1, 2015, ING Vysya Bank
was merged with KMBL and the integration process has been
completed.
Other than KMBL, the key operating companies of the Kotak group
are Kotak Mahindra Prime Ltd (car financing), Kotak Mahindra
Capital Company (investment banking), Kotak Securities Ltd (retail
and institutional equities broking, and portfolio management
services), Kotak Mahindra Investments Ltd (commercial real estate
lending and securities-based lending) and Kotak Investment
Advisors Ltd (alternate assets space).
Strong balance sheet growth in a
challenging macro environment
• Kotak Mahindra Bank’s loan book grew by 17.6% YoY driven by
home loans & loans against property (+24.2% YoY), small
businesses, personal loans and credit cards (+28.6% YoY),
agriculture & related activities (+22.2% YoY).
• The bank’s auto loan segment grew moderately by 8.3% YoY as
the industry is undergoing several structural changes and
declining auto volumes. The corporate lending & business
banking loans grew by 7.4% YoY largely due to a cautious
approach towards corporate lending.
• Alongside loan growth, the bank’s deposits mobilization (+22.8%
YoY) has shown stability despite the slowdown in the overall
economy. This was driven by high growth in current accounts
(+23% YoY) and savings account (+21% YoY), while term deposits
also grew 21% YoY in Q1 FY20. Overall, the CASA ratio stood at
an industry leading levels of 50.7% increasing by 45 bps YoY.
• Kotak Bank continues to impress on the asset quality
management front. The bank’s GNPA and NNPA have been
hovering around the same levels in the last few quarters. In fact,
GNPAs stood at 2.19% (+, +2bps YoY/ +5bps QoQ) while NNPAs
improved to 0.73% (down 13bps YoY/down 2 bps QoQ).
Management expressed willingness to increase their corporate
and auto loan growth in the coming quarters. Going forward, we
expect the core business of the bank to continue growing and
outperform its peers.

3. 1
KEY HIGHLIGHTS
Business segment review
KMBL’s credit portfolio registered a
strong growth of ~25% in FY2018, which
was higher than the private sector bank
average.
The share of corporate loans in overall
advances remained largely stable over
the years and stood at 32% as on
December 31, 2018 against 31% as on
March 31, 2017. The quality of
incremental advances and overall
corporate advances remains
comfortable with limited stressed
exposures.
During the last few years, the bank has
adopted a cautious approach in lending
to the SME/business banking segment
as well as the agricultural segment. As a
result, the share of advances to these
segments reduced to 9% and 12%,
respectively, as on December 31, 2018
from 13% and 14%, respectively, as on
March 31, 2017
This was offset by higher growth in
other segments like personal
loans/credit card loans, housing/loan
against property, and commercial
vehicles, whereby the share of these
segments rose to 16%, 20% and 9%,
respectively, as on December 31, 2018
from 13%, 19% and 8%, respectively, as
on March 31, 2017
SUN PHARMA LTD.
14 SEPTEMBER

4. 1
KEY STRATEGIES
Kotak Mahindra Group (Kotak) has been
consistently pursuing newer heights for the past
33 years. It has taken leaps to cross many
milestones by calibrating its steps and practising
caution when confronted with winds of change.
Kotak has adapted to new conditions with agility
and flexibility; choosing purpose and conviction
over consequences; sustainability and prudence
over aggression; long-term over short-term;
integrity and transparency over growth.
Kotak has become an adept enterprise – learning
and imbibing the art of survival and growth to
become bigger, bolder and better.
KMB’s s’lone earnings of Rs13.6bn (PLe: 13.8bn)
was marginally lower mainly on slightly higher
provisioning.
Key miss was slower loan growth of 18% YoY (15%
YoY incl. Auto loans) from +20% YoY for last few
quarters, while key positive was continued
traction on CASA which on average basis grew by
21% YoY. On non-bank business, Insurance stood
out with strong business momentum and earnings
and supported by AMC, other businesses were
mixed bag and subdued.
Bank is in strong position to cautiously gain
market share with pricing power, while has been
has been gradually creating strong liabilities base
but lower ROEs and slowing consumption cycle
keeps us from stretching further valuations,
leaving no upside. Hence, we retain our HOLD
rating with TP of Rs1,385 (unchanged) based on
Mar-21 SOTP.
SUN PHARMA LTD.
14 SEPTEMBER

5. 1
ORGANIZATION PERFORMANCE FOR FY 2019
SUN PHARMA LTD.
14 SEPTEMBER

6. 1
INVESTMENT RATIONAL
Asset quality stable:
 The bank has maintained stable the asset quality on consolidated as well as standalone
basis, in the quarter ended June 2019.
 On standalone basis, GNPA ratio was stable at 2.19% and NNPA ratio at 0.73% at end June
2019. • The SMA-2 category loans of the bank increased to Rs 332 crore at end June 2019
from Rs 138 crore a quarter ago and Rs 189 crore a year ago.
 Capital Adequacy ratio under Basel III including profits stood at 17.80% with the Tier I of
17.30% at end June 2019.
 The bank has improved provision coverage ratio of 67.0% end June 2019.
Credit, deposit accretion to continue at healthy pace
With a branch network of 1503 branches, focus on retail segment, KMB plans to drive credit
growth. Deposit base was at | 232931 crore as of Q1FY20 with CASA ratio of 50.7%, best in
industry. Going ahead, it is poised to pedal credit growth focusing on retail, better rated
corporate. We expect credit, deposit growth of 20.8%, 20.5% CAGR in FY19-21E,
respectively. The management is cautious on growth in auto sector in near term.
Industry Outlook
•Interest rates can drop by 50-75bps in next seven months. Financial markets remain fragile,
while yields have seen a good decline which some banks can use for further strengthening
balance sheets
•Availability of credit linked to solvency of consolidation & mortality in financial services is
quite possible but appropriate policy can reduce the mortality pains currently undergoing in
the markets
SUN PHARMA LTD.
14 SEPTEMBER

7. 1
Key Q1FY20 Conference Call highlights
Business Outlook
 Liabilities - Low cost liabilities continue to be of core strategy of franchise and
hence bank has been relentlessly focused on CASA growth and also TDs below
Rs10mn. This will continue to remain mainstay of the bank ahead as well. Post
Aadhar approval bank hopes to see strong growth coming back in the 811 product
(digital acquisition of liabilities).
 Assets – Bank can gain market share in assets and can work for loan growth of 20%
but remain cautiously. Bank sees medium term opportunity in the current market
place which has started articulating in Q1FY20 segmental growth. Agri have
grown market share in geographies with no change in collection efficiency
especially on tractor & SME. Have been cautious on crop loan especially post ING
acquisition and reduced portfolio by design.
Corporate loans growth has slowed on back of run-off in certain loans, while
cautious growth in business banking segment. Currently, bank has been focused on
strong pricing led growth strategy and hence selective. Margins
Margins – Benefit has been from both efficient liabilities management and higher
pricing in loans. Significant positive carry on Weighted average cost of savings
deposit and term deposit continues and with decent growth is helping keep cost of
funding lower.
Opex - Acquisition cost in 811 product (digital) is 15-20% lower than the physical
acquisition but is also lower in income/business metrics. This should again start
helping improve overall opex efficiencies for customer acquisition.
SUN PHARMA LTD.
14 SEPTEMBER

8. 1
• Advances grew 17.6% YoY/1.1% QoQ despite an overall consumption slowdown in the economy.
Vehicle financing saw muted growth largely due to decline in auto sales across the sector (ex-CV).
• Deposit mobilization remained buoyant with growth of 22.8% YoY/3.1% QoQ. CASA at 50.7%
increased by 45 bps YoY and down by 179 bps QoQ.
• NII at INR 3,173 Cr. is up 22.8% YoY/4.1% QoQ while Non-Interest Income was up 2.7% on
sequential basis (+12.0% YoY).
• PPOP at INR 2,399 Cr. is up 18.0% YoY/ 5.1% QoQ on back of NIM expansion. Total Income at INR
4,478 Cr. is up 19.5% YoY/3.7% QoQ.
• The bank has provided for INR 317 Cr. as provisions during the quarter, down 32.6% YoY, but
higher by 85% QoQ.
• Asset quality fell with GNPAs at 2.19%, increasing by 2bps YoY / 5bps QoQ while NNPAs at 0.73%
went down by 13bps YoY / 2 bps QoQ. PCR stood at 67.0%.
• Standalone PAT at INR 1,360 Cr. was up 32.7% YoY while consolidated PAT increased 23% YoY to
INR 1,932 Cr.
Q1 FY. 2020 KEY HIGHLIGHTS
SUN PHARMA LTD.
14 SEPTEMBER

9. 1
Advance/Deposit Ratio stabilizing
around +90%
Stable Asset Quality to help maintain premium valuation
 Kotak Bank continues to impress on the asset quality management front.
 The bank’s GNPA and NNPA have been hovering around the same levels in the last few
quarters. In fact, GNPAs stood at 2.19% (+, +2bps YoY/ +5bps QoQ) while NNPAs improved to
0.73% (down 13bps YoY/down 2 bps QoQ).
 Management expressed willingness to increase their corporate and auto loan growth in the
coming quarters. Going forward, we expect the core business of the bank to continue growing
and outperform its peers.
SUN PHARMA LTD.
14 SEPTEMBER
NIM: High CASA share yet to translate
fully into margin

10. 1
Insurance leads sub performance
Outlook & Valuation
We expect Kotak Mahindra Bank to deliver NII growth of average ~20% YoY in FY20E/FY21E on back of
its expanding retail franchisee (1,503 branches at end 1QFY20 vs. 1,391 branches Q1FY19).
The digital banking and focus on small ticket size deposits should keep their Opex lower while keeping
cost of funds low. The growth rates in auto and corporate lending are likely to increase in the next few
quarters which will further support loan book growth. We expect the C/I to come down in the future
as the bank’s 811 account and other smaller ticket deposits help maintain liquidity.
Kotak Mahindra Bank is currently trading at a P/B multiple of 5.9x/4.7x on FY20E/FY21E book value
and we expect the premium valuation of the bank to continue on the back of its growing loan book
despite industry headwinds, high spreads in corporate lending and solid performance of its various
subsidiaries, specially the insurance business to provide consistent growth in the near future.
We apply a P/B multiple of 4.8x to the FY20 book value of the parent bank and arrive at a TP of INR
1,620 per share on SoTP basis, an upside of 8.4% over CMP. Since, our last “BUY” rating, the shares of
Kotak Bank has advanced 6.4%. We remain positive on the counter and recommend an “Accumulate”
rating.
SUN PHARMA LTD.
14 SEPTEMBER

11. 1
INCOME STATEMENT
SUN PHARMA LTD.
14 SEPTEMBER

12. 1
Balance sheet
SUN PHARMA LTD.
14 SEPTEMBER

13. 1
Key Ratio
SUN PHARMA LTD.
14 SEPTEMBER

14. 7
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SUN PHARMA LTD.
14 SEPTEMBER