Kotak Mahindra Bank – Q1FY21 Concall Takeaways.

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Before we delve deeper into the concall takeaways, here are the result and takeaways –

Uday Kotak says moving to a new normal World.

Covid Clarity is yet to emerge. Only in October November period the virus may get stabilized on a national basis.

We are in the hands of science and finding economic answers is difficult. Next 9-12 months will be crucial to find the science answers.

Balance sheet more important than P&L.

Moratorium – Moratorium 2.0 – 9.65% of total loan book. Surgical criteria for taking decisions on Moratorium 2.0. Mainly focused on trying to assess the fundamental viability of the borrower to the extent they can and only when underlying business viability was there, it was given. When that was not the case, they took a bold decision to stop the flow to them. Bank took the pain of not having loans under moratorium and identifying it as a weakness earlier only. Some accounts flew into NPA and we are ready to recognize them chin on. 80% or more of Moratorium book has an underlying (secured loan) in some form, so only small 20% is unsecured.

Employee costs down by 6% mostly helped by senior management that took cut on salary.

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OpEx:  -18% and -29% on YoY and QoQ basis.

~95% of branches were open during the quarter.

Continue to see strong growth in deposits.

Cost of saving deposit – 4.22% now vs 5.21% earlier.

MSME Disbursement – Developed an end to end paperless system. Saw good fee income from these disbursals recently. Bank will continue to build a liability franchise for MSMEs.

Continue to be cautious on unsecured loans.

Collections – June and July improvement in resolutions. Strengthened by moving key leadership to collection, risk analytics for collection strategy, enabled digital solutions for collections to happen and enabled agencies with an app to monitor all collection activities.

CV/CE – Steep fall in sales in new CV. Recent time saw higher fuel prices and lower load making it unviable. Capacity utilization of 70-80%. Collection efficiency during June July has been much better. Cautious on new disbursements, completely focused on managing existing portfolio and collecting it. CE business is better placed, demand for equipment improving MoM. Customers in the mining and road construction industry seem to be getting to normal faster.

Agri Business- SMEs involved in primary and secondary of agriculture (Farmers, dairy). Les impacted as they were supplying essentials. A timely harvest and good cash flows have helped their customers resulting in good collections. Localized lockdowns impact collections on and off.

Tractor Business- YoY growth in May and June with disbursements higher during this month. Deep distribution and digital processes have helped with doing normal levels of business. Collection efficiency during June is close to pre Covid levels. Tractor markets expected to do well due to good harvest and good cash flows.

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Corporate Book – Cautious on this segment (To make sure they don’t get hit by big bullets). Classifying loans into high, medium and low risk. Cautious with highly leveraged groups. Maintained high alert on high risk classification and monitoring very closely (day to day basis monitoring). Presence is quite good; they can scale up exposures quite quickly given that if they have comfort in the next few months. Focused on improving spreads.

SME – stable portfolio behaviour. Through last year, rationalized this portfolio and cleaned it up. Portfolio showing significant underutilization of funds depicting low activity. Optimistic on the medium term for SNE>

Non HFC NBFC exposures have marginal dropped with focus on high end of NBFC sector.

Asset Quality – GNPA of 2.7% and NNPA of 0.87%.

Slippages at 796 Cr, one large account.

Digital – 97% of recurring, 87% of FD came via digital. UPI volumes continue to rise. (Specially Grocery)

Book Value Per Share – Rs 383 Per Share including current quarter profits

Kotak Mahindra Prime – Car industry down by 17% due to structural changes. Started disbursement in June with stringent norms and cautious approach. Fee income was 12 Cr against 63 Cr. Collection efficiency is better but remains a challenge.

Kotak Life – Insurance business requires lot of face to face meetings and hence affected. Increased digitally, Upsell and Cross-sell. Individual APE grew by 8%, against industry de-growth of 18%. Persistency ratio is high with among top quartile companies. Total AUM grown by 17.3%.

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General Insurance business has shown good growth with good underlying underwriting.

Kotak Securities – Topline of 459 Crs vs 411 cr YoY. Biggest positives are increase in retail cash segments. Average Daily Value (ADV) was 36000 Cr in Q1FY20 which in this quarter increased to Rs 59000 Cr.  The total no. of demat accounts in last 12 months has seen a big rise. From 3.7 Cr it is now at 4.31 Cr.

Kotak AMC – SIP market share was 5.02% in June 2019 that increased to 5.93% in June 2020.

Questions –

Risk has to be taken if money has to be made out of taking it.

There will be a time and we will step on the accelerator like entrepreneurs when risk reward matrix works for them. Returns have to be also made without disproportionately loading up on balance sheet. On that front, the bank sees huge opportunity on market and distribution side with the help of tech.

Restructuring is not a free lunch.

Cost of funds can go down further while building a customer liability franchise.

Mortgages are one area where they will focus. Last 18 months, they focused a lot. The market is unlimited. Pre-Covid and Post-Covid there is a huge opportunity. Crafting strategy but it is a big area.

Disclaimer

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JST Investments is a Mumbai-based investment firm that believes in long-term wealth creation. It's a brainchild of Aditya Kondawar, Aditya Shah, and Anish Moonka.
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