ICICI Securities on Tuesday upgraded its ratings on Kotak Mahindra Bank from ‘HOLD’ to ‘ADD’.
The brokerage said the bank’s Q3FY21 earnings were characterised by rising comfort towards lending to better-rated large corporates (up 7% QoQ), MSMEs under sovereign guaranteed ECLGS schemes (Rs97bn till date), and secured retail portfolio (up 5% QoQ).
The bank has disbursed Rs 97 billion till date under (>5% market share of system ECLGS disbursements against its credit market share of 2%) which it disbursed to 50-60 percent of ex-corporate/mortgage portfolio as eligible pool.
According to the brokerage, no excess leveraging was reflected in the YoY growth – many customers who took Emergency Credit Line Guarantee Scheme (ECLGS) benefit have lowered their utilisation of other limits.
“On anticipated lines, proforma GNPAs rose to 3.27% (from 2.7% in Q2FY21), SMA-2 settled at 0.3%, approved restructuring was much lower at 0.28% (suggesting sub-4% stress pool) and well covered with provisioning build-up of 2.9%.”
However, unsecured retail and commercial vehicle (bus operator segment) portfolios are reflecting disproportionate stress.
“Credit cost for Q3FY21 and 9MFY21 at 115bps suggests our FY21E estimate of 160bps (ask-rate of >300bps) is too conservative, hence we revise it to 1.3%/1.2% for FY21E/FY22E, thereby leading to earnings upgrade of 7%/3%, respectively.”
ICICI Securities pointed out that overhead costs failed to cheer due to rising spends towards a few growth initiatives.
On subsidiaries, auto financing and investment banking gained earnings traction while international subsidiaries saw a dip.
The stock has corrected 9 percent since its downgrade to HOLD and now the brokerage has upgrade it to ADD with the target price unchanged at Rs 2,023.