Kotak Mahindra Bank Ltd. - Moneycontrol.comstatic-news.moneycontrol.com/static-mcnews/2018/08/Kotak-Mahindra-Bank_300818.pdfPage 5 Kotak Mahinda Bank Ltd (banking entity) –811 an

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Kotak Mahindra Bank Ltd.

COMPANY UPDATE 30th August, 2018

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Kotak Mahindra Bank Ltd Sensex

Kotak Mahindra Bank Ltd DECODING KOTAK

CMP

INR 1276Target

INR 1544Potential Upside

21%Market Cap (INR Mn)

2,454,818Recommendation

BUYSector

BFSI

India Equity Institutional Research II Company Update II 30th August, 2018

Shares outs (Mn) 1906

EquityCap (INR Mn) 9533

Mkt Cap (INR Mn) 2454818

52 Wk H/L (INR) 1424/962

Volume Avg (3m K) 2135.1

Face Value (INR) 5

Bloomberg Code KMB IN

MARKET DATA

SHARE PRICE PERFORMANCE

SENSEX 38723

NIFTY 11692

MARKET INFO

Particulars (INR Bn) FY15 FY16 FY17 FY18 FY19E FY20E

NII 97.2 163.8 177.0 197.5 255.5 320.8

PPOP 30.0 40.4 59.8 71.6 96.3 120.5

PAT 18.7 20.9 34.1 40.8 55.8 70.0

EPS (INR) 24.2 11.4 18.5 21.4 29.3 36.7

BVPS (INR) 183.1 130.6 150.0 196.7 224.8 260.1

ABVPS (INR) 175.2 123.7 140.7 187.9 215.2 249.5

P/BV (x) (consol.) 4.6 3.7 4.2 4.7 4.2 3.7

KEY FINANCIALS

Source: Company, KRChoksey Research

OVERVIEW – “concentrated India, diversified financial services” – Annual Report FY18

The Indian financial services space was always inhabited by a few visionary groups for whom demonetisation was a boon and the event onlyaccelerated their agenda of financialization. One such visionary group is Kotak which offers financial products across the board –credit, deposits, wealth management, broking, life insurance, general insurance, investment banking, asset management, auto loans. With sucha vast array of products in its kitty, the opportunity to cross-sell across the group is large. For example, 50% volume for life and general insurancecomes from Kotak’s own distribution network. In this note, Decoding Kotak, we have tried to dissect each of the main subsidiaries that webelieve will continue to grow larger and will be instrumental in driving synergy benefits and cross-sell opportunities as well as improvingprofitability level at the group level. While 811 continues to be the bank’s strategy to acquire customers, our recent interaction with the bankmakes us believe strategies at each of the subsidiaries too are at play in full-force. We also believe that each business has (a) certain trigger(s)that will unfold gradually over time. As a group, Kotak has enough management bandwidth and a highly qualified and skilled bench to executeits evolution and ride the Indian financialization wave. Based on our SoTP, KMBL trades at 3.7x its FY20E consolidated book value. Given theopportunity and KMBL’s quality and pedigree, we believe it will be a steady compounder.

Particulars Jun 18 Mar 18 Dec 17

Promoters 30.03 30.04 30.06

FIIs 39.93 39.56 39.41

DIIs 8.77 8.98 8.96

Others 21.27 21.43 21.58

Total 100 100 100

SHARE HOLDING PATTERN (%)

100% ownership in key subs makes Kotak amongst the best positioned ones to play the financializationtheme

KMBL’s 100% ownership in key subs like Prime, life/general insurance, securities/broking, KotakCapital, AMC renders it a top contender for playing the Indian financialization theme. These subs havebeen as much instrumental in delivering shareholder returns as the standalone banking entity. Over thelast 10 years (FY08-18), standalone PAT has grown at CAGR of 30% while consolidated PAT has grown at20% CAGR. Over the same period, KMBL’s MCAP has grown at 25% CAGR. On consolidated basis, subscontribute 34% at the PAT level and 26% in terms of book/net worth. Unfolding of structural changes inthe economy over the last couple of years has accelerated formalization of the economy. A by-productof this has been mobilization of savings towards more modern and sophisticated avenues. Given themacro tailwinds, coupled with array of product offering and brand equity of Kotak, we believe KMBLcan be a steady compounder. While KMBL maybe perceived as expensive based on its trailing P/BV of4.6x (+13% premium to last 5 years’ avg P/BV), we are of the view that quality commands premium.Based on our estimates for the parent and each of the subs, KMBL is currently trading at 3.7x its FY20Econsolidated book value. Our SoTP valuation and target price imply a multiple of 4.5x FY20E consol. BV(+22% upside, BUY). Subs contribute 19% to our value estimate while the parent/bank accounts for theremaining 81%. Going forward, given that some of the subs (life insurance, AMC) are yet to attain scaleand derive operating leverage, we believe proportion of value contribution by subs is likely to increaseas the financialization theme emerges.

We have refrained from commenting on the issue of reduction of promoter stake in the bank due to lack ofclarity on the subject. Issuance of preference share (PNCPS) would have diluted promoter stake but notvoting rights. Soon after, RBI rejected the proposal. We believe this to be a overhang on stock performanceuntil clarity emerges.

Advances CAGR FY19-20E NII CAGR FY19-20E

25% 26%

+91-22-6696 5555 / +91-22-6691 9576www.krchoksey.com

KRChoksey Researchis also available on Bloomberg KRCS<GO>

Thomson Reuters, Factset and Capital IQ

ANALYSTRaghav Garg, [email protected], +91-22-6696 5584Anushka Chhajed, [email protected], +91-22-6696 5620

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Our estimates suggest the bank is currently trading at 3.7x FY20E consol. BV and our SoTP valuation implies a 4.5x P/BV. The bank iscurrently trading 4.6x its trailing book BV which is 13% higher than the average over the last 5 years. We are estimating aconsolidated PAT CAGR of 23% over FY19/20E and BV CAGR of 14%. We maintain BUY (TP = INR 1,544).

Kotak Mahindra Bank Ltd

Kotak Mahindra Bank Ltd. - SoTP valuation

Entity Valuation methodology Holding

Intrinsic value per share (INR)

FY20E

KMBL - Standalone banking business / Parent 5x FY20E ABV 100% 1,247

Kotak Prime 2x FY20E BV 100% 65

Kotak Life Insurance 3x FY20E GWP 100% 165

Kotak Securities 15x FY20E EPS 100% 64

Kotak Capital 15x FY20E EPS 100% 7

Kotak AMC 5% FY20E AAUM 100% 59

Others 10

Holding co. discount (%) 20%

Value of subs (INR per share) 297

Value of total (INR per share) 1,544

CMP (INR) 1,276

Upside (%) 21%

Parent's contribution to total value per share (%) 81%

Contribution by subsidiaries (%) 19%

Consolidated net worth (INR Bn) Holding FY20E

KMBL - Standalone banking business / Parent 100% 496

Kotak Prime 100% 62

Kotak Life Insurance 100% 31

Kotak Securities 100% 50

Kotak AMC 100% 5

Kotak Capital 100% 7

Total consolidated net worth* 651

Estimated value of the group (as per SoTP) 2,944

Implied trailing P/B (x) (based on TP and consol. NW) 4.5

Implied forward P/B (x) (based on CMP and consol. NW) 3.7

Consolidated PAT (INR Bn) Holding FY20E

KMBL - Standalone banking business / Parent 100% 70.0

Kotak Prime 100% 7.6

Kotak Life Insurance 100% 5.4

Kotak Securities 100% 8.1

Kotak AMC 100% 1.5

Kotak Capital 100% 1.0

Total consolidated PAT* 93.5

*only considers the main subs







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SoTP valuation methodology reasoning

EntityValuation

methodologyComments

KMBL - Standalone bank / Parent 5x FY20E ABV

-One of the largest retail-focused banks;

-Negligible exposure to stressed corporate;

-Superior quality of credit underwriting translating into low NPAs;

-Strong brand equity + new-age bank + in-sync with latest tech;

-Valuation multiple in-line with comparable peers.

Kotak Prime 2x FY20E BV

-Mainly into PV/auto finance (CV finance goes through the bank);

-PV finance is an ever-competing industry;

-Foray into 2W finance should be NIM accretive;

-ROE has been declining mainly on account of dropping yields;

-Valuation multiple is after considering lack of pricing power and

competitive edge amidst increasing competitive intensity.

Kotak Life Insurance 3x FY20E GWP

-Focusing on protection;

-Consciously restricting growth in ULIPs due to lower profitability;

-Favorable and profitable distribution mix - majority through banca and

direct channel;

-Thought out strategy driving VNB margin higher (at 29.3%, > HDFC Life);

- Exhibiting strong growth momentum;

-Valuation multiple (P/GWP) higher than ICICI Pru, SBI Life, lower than

HDFC Life despite strongest VNB margins and low base offering ample

growth/scale opportunity.

Kotak Securities 15x FY20E EPS - In-line with the industry comparables.

Kotak AMC 5% FY20E AAUM

-AUM mix is changing in favor of more profitable segment, ie, equity;

-Improved MF ranking on back of improved fund returns;

-Valuation multiple is on the lower end of the peer valuations'

spectrum.

Kotak Capital 15x FY20E EPS







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Kotak Mahinda Bank Ltd (banking entity) – 811 an acquisition tool, ‘one-stop shop’ will ensurestickiness

Led by its 811 strategy (launched on 29th March 2017), the bank is aiming to accelerate its customer acquisition. 811, a fully digitally-enabled savings account, continues to offer 6% savings rate without any requirement for minimum balance. We believe thisproposition is value-accretive as despite offering a higher rate, the customer acquisition costs are lesser by 80-90%. Rapid scalability isanother advantage – at the time of launch, the bank targeted doubling its customer base from 8.5 mn. As of Q4FY18, the bank had 13mn customers. Given that 90% of the incremental customers are aged 18-40 years, we believe the bank is aptly positioned to appealto the younger population. We also believe the group’s offerings across the financial spectrum will help ensure customer stickinesswhile at the same time deliver improved profitability on back of savings through bundling of products. We are of the view that asfinancialization gathers pace, banks will need to offer more than just plain-vanilla deposit-credit services in order to be distinctlyadvantaged.








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Kotak Mahindra Bank Ltd1,

260

1,29

3

1,36

1

1,4

24

1,52

6

1,59

1

1,6

97

1,76

9

2,11

7

2,6

40

13% 12%15%

18%

21%23%

25% 24% 25% 25%

0%

5%

10%

15%

20%

25%

30%

0

500

1,000

1,500

2,000

2,500

3,000

Large branch network and diverse offerings have enabled higher-than-industry average growth; expect momentum to

continue..

Advances (INR Bn) Growth (%) (yoy)

30.7% 32.9% 30.6% 32.3% 32.1% 31.4% 30.7% 32.6%

7.3% 7.5% 8.0% 8.0% 8.0% 8.3% 9.0% 9.1%13.7% 12.8% 13.9% 13.0% 12.9% 12.9% 13.5% 12.0%

13.8% 12.9% 13.1% 12.3% 11.9% 11.3% 10.8% 10.2%

19.4% 19.4% 19.2% 19.3% 19.3% 19.5% 19.1% 19.2%

12.6% 12.2% 12.8% 12.8% 13.7% 14.4% 14.8% 14.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19

Pessimistic view on business banking; composition otherwise stable..

Corp. banking CV/CE Agri

Business banking HL/LAP Small biz., PL, CC

Others

1,4

10

1,4

94

1,57

4

1,6

35

1,6

57

1,8

08

1,9

26

1,8

97

2,4

08

3,0

10

39%42%

44% 44%48% 47%

51% 50% 52% 53%

0%

10%

20%

30%

40%

50%

60%

0

500

1,000

1,500

2,000

2,500

3,000

3,500811 has been instrumental in driving liabilities business..

Deposits (INR Bn) Growth (%) (yoy) CASA (%)

15.8% 16.0%16.8%

19.2%18.4%

17.1%18.2% 18.3%

16.3%15.4%

0%

5%

10%

15%

20%

25%

Healthy CAR enables chaaing growth opportunities. RWA density stands favorable at 80%.

CAR (%)

2.5% 2.4%2.6% 2.6%

2.5%2.3% 2.2% 2.2%

2.0%1.8%

1.2%1.1%

1.3% 1.3% 1.3%1.1%

1.0%0.9% 0.9% 0.8%

0%

10%

20%

30%

40%

50%

60%

70%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Prudent underwriting has resulted in superior asset quality..

GNPA (%) NNPA (%) PCR (%)

4.0% 4.0% 3.8% 3.9% 3.8% 3.8% 3.7%3.3%

3.8% 3.9%

1.7% 1.8% 1.9%1.7% 1.7% 1.7% 1.8%

1.5%1.9% 1.9%

0%

1%

2%

3%

4%

5%

We expect NIMs to stay stable on back of increasing share of high yielding portfolio..

Risk-adjusted NIMs (%) RoA (%)

Source: Company, KRChoksey Research Source: Company, KRChoksey Research

Source: Company, KRChoksey ResearchSource: Company, KRChoksey Research







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Kotak Mahindra Bank (standalone) (INR Mn)

Income Statement FY2015 FY2016 FY2017 FY2018 FY2019E FY2020E

Interest income 97,199 1,63,842 1,76,989 1,97,486 2,55,512 3,20,820

Interest expense 54,961 94,838 95,728 1,02,168 1,35,665 1,70,201

Net interest income 42,237 69,004 81,261 95,318 1,19,847 1,50,620

Non interest income 20,285 26,122 34,772 40,521 50,029 61,392

Total income 62,522 95,126 1,16,033 1,35,840 1,69,876 2,12,012

Operating expenses 32,547 54,715 56,185 64,256 73,552 91,488

Employee costs 95,069 1,49,841 1,72,218 2,00,096 2,43,429 3,03,500

Other operating expenses 17,880 26,546 28,500 34,754 42,015 49,893

Pre-provision profit 29,975 40,411 59,848 71,583 96,324 1,20,524

Provisions 1,645 9,174 8,367 9,399 11,298 13,983

Profit before tax 28,330 31,237 51,481 62,184 85,026 1,06,542

Tax expense 9,670 10,339 17,366 21,339 29,178 36,561

Net profit 18,660 20,898 34,115 40,845 55,849 69,981

Balance sheet

SOURCES OF FUNDS

Shareholders' funds 1,41,411 2,39,591 2,76,161 3,74,816 4,28,478 4,95,716

Borrowings 1,21,497 2,09,753 2,10,955 2,51,542 2,99,937 3,57,643

Deposits 7,48,603 13,86,430 15,74,259 19,26,430 24,08,038 30,10,048

Other liabilities & provisions 48,580 86,790 84,507 96,521 1,00,026 1,22,760

TOTAL LIABILITIES & EQUITY 10,60,121 19,22,598 21,45,900 26,49,332 32,36,479 39,86,167

USES OF FUNDS

Cash and cash equivalent 62,624 1,08,797 2,25,720 1,96,201 2,31,758 2,89,698

Investments 3,04,211 5,12,602 4,50,742 6,45,623 7,70,572 9,33,115

Advances 6,61,607 11,86,653 13,60,821 16,97,179 21,16,675 26,39,859

Fixed & other assets 31,679 1,14,546 1,08,616 1,10,329 1,17,473 1,23,495

TOTAL ASSETS 10,60,121 19,22,598 21,45,900 26,49,332 32,36,479 39,86,167








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Key ratios FY2015 FY2016 FY2017 FY2018 FY2019E FY2020E

Growth rates

Advances (%) 24.8% 79.4% 14.7% 24.7% 24.7% 24.7%

Deposits (%) 26.7% 85.2% 13.5% 22.4% 25.0% 25.0%

Total assets (%) 21.0% 81.4% 11.6% 23.5% 22.2% 23.2%

NII (%) 13.5% 63.4% 17.8% 17.3% 25.7% 25.7%

PPOP (%) 16.3% 34.8% 48.1% 19.6% 34.6% 25.1%

PAT (%) 24.2% 12.0% 63.2% 19.7% 36.7% 25.3%

Balance sheet ratios

Credit/Deposit (%) 88.4% 85.6% 86.4% 88.1% 87.9% 87.7%

CASA (%) 36.4% 38.1% 44.0% 50.8% 51.7% 53.1%

Advances/Total assets (%) 62.4% 61.7% 63.4% 64.1% 65.4% 66.2%

Leverage (x) 7.3 7.8 7.9 7.4 7.3 7.8

CAR (%) 17.2% 16.3% 16.8% 18.2% 16.3% 15.4%

Operating efficiency

Cost/income (%) 52.1% 57.5% 48.4% 47.3% 43.3% 43.2%

Opex/total assets (%) 3.1% 2.8% 2.6% 2.4% 2.3% 2.3%

Opex/total interest earning assets (%) 3.5% 3.9% 2.9% 2.8% 2.6% 2.6%

Profitability

NIM (%) 4.5% 4.9% 4.2% 4.2% 4.2% 4.3%

RoA (%) 1.9% 1.4% 1.7% 1.7% 1.9% 1.9%

RoE (%) 14.1% 11.0% 13.2% 12.5% 13.9% 15.1%

Asset quality

Gross NPA (%) 1.9% 2.4% 2.6% 2.2% 2.0% 1.8%

Net NPA (%) 0.9% 1.1% 1.3% 1.0% 0.9% 0.8%

PCR (%) 50.8% 55.5% 52.0% 56.5% 58.0% 58.0%

Net slippage (%) 0.3% 2.4% 0.6% 0.2% 0.3% 0.2%

Credit cost (%) 0.3% 0.8% 0.5% 0.4% 0.4% 0.4%

Per share data

EPS (INR) 24.2 11.4 18.5 21.4 29.3 36.7

BV (INR) 183.1 130.6 150.0 196.7 224.8 260.1

ABV (INR) 175.2 123.7 140.7 187.9 215.2 249.5







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ROA Tree FY2015 FY2016 FY2017 FY2018 FY2019E FY2020E

Interest income 10.0% 11.0% 8.7% 8.2% 8.7% 8.9%

NII 4.4% 4.6% 4.0% 4.0% 4.1% 4.2%

Operating income 6.5% 6.4% 5.7% 5.7% 5.8% 5.9%

Opex 3.4% 3.7% 2.8% 2.7% 2.5% 2.5%

PPOP 3.1% 2.7% 2.9% 3.0% 3.3% 3.3%

Provisions 0.2% 0.6% 0.4% 0.4% 0.4% 0.4%

PBT 2.9% 2.1% 2.5% 2.6% 2.9% 3.0%

PAT 1.9% 1.4% 1.7% 1.7% 1.9% 1.9%

Leverage (x) 7.3 7.8 7.9 7.4 7.3 7.8

RoE (%) 14.1% 11.0% 13.2% 12.5% 13.9% 15.1%







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Kotak Mahindra Prime Ltd (car finance)

Kotak Mahindra Prime (KMPL) is the car financing arm of KMBL, focusing on PVs and MUVs (KMBL does CVs). Besides offering autoloans to individuals, the company also provides complete finance solutions to car dealers for their working capital loans andinfrastructure requirements in form of inventory funding and terms loans. Of the total business, 84% is auto finance largelydominated by PVs. The total loan book stands at INR 281 bn, having grown at a CAGR of 14.1% over the last 7 years.

In terms of focus segments, the company does 3 categories of cars – 1) lower end (Maruti, Hyundai), 2) upper middle segment(Honda, Toyota, Volkswagen) and 3) top end. Of the three, focus is primarily on the upper middle segment where the companyenjoys a large market share. The company attributes its strong market share to long-standing relationships at the dealership level.Having been around for 30 years and given that dealers seek longevity of financing partners, it remains a preferred choice amongstlarge number of dealerships. Over FY19-21E, we are factoring in advances CAGR of 15%.

From our interaction, we could infer that KMPL would rather compromise on growth than on quality and risk. For instance, despite alarge number of incumbents offering tenors of up to 7 years, 90% of KMPL’s book is within the 3-year maturity bucket. Anotherfactor that restricts KMPL from disbursing longer-tenor loans is that the customer segment is largely self-employed. In case ofsalaried customers, banks may go up for higher tenors since the cash flow certainty is higher. We are of the view that in today’s ageof rapidly changing technology, design and consumer preferences, longer tenor loans are a risky bet. Given the group’sphilosophy, KMPL has been able to maintain good asset quality with GNPAs/NNPAs at 0.86%/0.37% (FY18). Despite 90% of the bookbeing in the 3-year maturity bucket, we believe the PCR at 57% is at comfortable levels.

Going forward, KMPL plans to enter 2W financing. Although competitive, the segment could fetch higher yields. Given thecompetitive nature of the auto finance sector (including 2W finance), we do not expect any substantial improvement in profitability.On back of declining NIMs, we expect ROE to remain around 13%.


111.4134.0

170.6174.1191.5

216.0242.9

281.1

323.3

371.8

20.2%

27.3%

2.1%

10.0%12.8%12.4%

15.8%15.0%15.0%

0%

5%

10%

15%

20%

25%

30%

0

100

200

300

400

14.1% CAGR over FY11-18; expecting 15% over FY19/20

Advances (INR Bn) Growth (%)

34.439.0

44.948.8

1.7 2.0 2.2 2.4

17.4%17.5%

17.8%

17.3%

17%

18%

0

20

40

60

FY15 FY16 FY17 FY18

Dealership funding has been stable at 17-18%..

Top 20 exposure (INR Bn) Avg ticket size (INR Bn)

% of total advances

Given Kotak's underwriting philosophy and customer focus, maturity profile should stay favorable.

Advances composition, by maturity (%) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

upto 30/31 days 16% 13% 15% 13% 12% 12% 11% 10%

1 - 2 months 4% 7% 8% 6% 6% 7% 5% 5%

2 - 3 months 5% 6% 4% 6% 7% 4% 7% 6%

3 - 6 months 15% 14% 13% 13% 12% 11% 15% 14%

6 months - 1 year 19% 20% 19% 19% 18% 18% 15% 18%

1 - 3 years 34% 33% 34% 36% 37% 38% 38% 37%

3 - 5 years 7% 6% 6% 7% 8% 8% 7% 10%

5 years and over 1% 0% 0% 0% 0% 2% 3% 1%




11Page


4.4%3.6% 3.9% 4.4% 4.3% 3.8% 3.5% 3.5% 3.5% 3.5% 3.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Competitive pressures will limit NIM expansion..

Yield on advances (%) Cost of funds (%) NIM (%)

1.7%

1.7%

1.5%

1.5%

1.6% 1.6%

1.5%1.5% 1.5% 1.5% 1.5%

1.3%

1.4%

1.5%

1.6%

1.7%

1.8%

Opex/avg total assets (%) - Expect cost ratios to remain stable..

0%

20%

40%

60%

80%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

Stable asset quality despite SE focus; given the maturity profile, PCR seems adequate..

PCR (%) GNPA (%) NNPA (%)

7.8 7.9 8.06.8 6.2 6.2 6.4 6.3 6.3 6.4 6.5

2.7% 2.8% 2.5% 2.6% 2.5% 2.3% 2.0% 2.1% 2.0% 2.0% 2.0%

21%22%

20%

18%16%

14%13% 13% 13% 13% 13%

0

2

4

6

8

10

0%

5%

10%

15%

20%

25%

Competitive pressures will limit improvement in profitability..

Leverage (x) RoA (%) RoE (%)








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Kotak Mahindra Prime Limited (non-deposit taking AFC-NBFC) (INR Mn)

INCOME STATEMENT FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Interest income 23,961.1 24,822.4 26,189.9 28,600.3 31,995.0 36,446.6 41,513.9

Interest expense 15,189.7 15,842.6 16,805.0 18,240.7 20,079.9 22,807.7 26,228.9

Net interest income 8,771.3 8,979.8 9,384.9 10,359.6 11,915.1 13,638.9 15,285.0

Non-interest income 2,443.3 2,793.3 3,031.6 3,345.9 3,740.8 4,292.9 4,927.7

Total income 11,214.6 11,773.0 12,416.5 13,705.5 15,655.8 17,931.8 20,212.8

Opex 3,259.3 3,636.9 3,942.2 4,308.6 4,879.2 5,599.4 6,427.5

PPOP 7,955.3 8,136.1 8,474.3 9,396.9 10,776.6 12,332.4 13,785.3

Provisions 215.8 409.7 596.3 378.1 604.5 695.1 799.4

PBT 7,739.5 7,726.4 7,878.0 9,018.8 10,172.1 11,637.2 12,985.9

Tax 2,665.9 2,703.3 2,730.4 3,122.6 3,521.9 4,029.2 4,496.1

PAT 5,073.6 5,023.1 5,147.6 5,896.2 6,650.2 7,608.1 8,489.8

BALANCE SHEET FY15 FY16 FY17 FY18 FY19E FY20E FY21E

EQUITY AND LIABILITIES

Shareholders' funds

Share capital 45.0 45.0 35.0 35.0 35.0 35.0 35.0

Reserves & surplus 33,462.2 38,481.6 42,235.7 48,129.4 54,779.6 62,387.6 70,877.4

Total shareholders' funds 33,507.2 38,526.6 42,270.6 48,164.3 54,814.5 62,422.6 70,912.4

Borrowings 1,20,442.4 1,58,227.2 1,57,246.0 1,69,136.5 1,89,432.9 2,17,847.9 2,50,525.1

Other liabilities & provisions 53,193.2 42,505.7 72,095.1 85,646.5 1,03,370.9 1,18,700.7 1,36,588.8

TOTAL 2,07,142.8 2,39,259.5 2,71,611.7 3,02,947.4 3,47,618.3 3,98,971.2 4,58,026.2

ASSETS

Fixed assets 275.0 289.3 287.7 300.7 306.8 312.9 319.1

Cash & cash equivalent 2,998.6 7,508.7 10,472.7 9,463.1 10,882.5 12,514.9 14,392.1

Advances 1,91,476.4 2,15,992.3 2,42,879.0 2,81,145.6 3,23,317.5 3,71,815.1 4,27,587.3

Investments 9,236.0 11,582.5 12,853.3 7,053.6 8,111.6 9,328.3 10,727.6

Other assets 3,156.8 3,886.7 5,118.9 4,984.4 5,000.0 5,000.0 5,000.0

TOTAL 2,07,142.8 2,39,259.5 2,71,611.7 3,02,947.4 3,47,618.3 3,98,971.2 4,58,026.2








13Page


Key performance indicators FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Advances growth (%) 10.0% 12.8% 12.4% 15.8% 15.0% 15.0% 15.0%

Borrowings growth (%) -22.9% 31.4% -0.6% 7.6% 12.0% 15.0% 15.0%

Fixed assets growth (%) -1.9% 5.2% -0.5% 4.5% 2.0% 2.0% 2.0%

Advances/total assets (%) 92.4% 90.3% 89.4% 92.8% 93.0% 93.2% 93.4%

Spread analysis

Yield on advances (%) 12.5% 11.7% 11.1% 10.6% 10.4% 10.3% 10.2%

Yield on funds (%) 12.2% 11.3% 10.4% 10.1% 10.0% 9.9% 9.8%

Cost of funds (%) 11.0% 11.4% 10.7% 11.2% 11.2% 11.2% 11.2%

NIM (%) 4.3% 3.8% 3.5% 3.5% 3.5% 3.5% 3.4%

Cost structure/operational efficiency

Opex/NII (%) 37.2% 40.5% 42.0% 41.6% 41.0% 41.1% 42.1%

Opex/total income (%) 29.1% 30.9% 31.8% 31.4% 31.2% 31.2% 31.8%

Opex/avg total assets (%) 1.6% 1.6% 1.5% 1.5% 1.5% 1.5% 1.5%

Asset quality

GNPA (%) 0.77% 0.81% 0.89% 0.86% 0.86% 0.86% 0.80%

NNPA (%) 0.44% 0.41% 0.38% 0.37% 0.37% 0.37% 0.35%

PCR (%) 43.0% 49.3% 57.8% 57.4% 57.4% 57.4% 56.3%

Credit costs (bps) 12 bps 20 bps 26 bps 14 bps 20 bps 20 bps 20 bps

Capital

Tier I capital (%) 15.3% 15.6% 15.6% 16.1% 15.8% 15.6% 15.5%

Tier II capital (%) 3.0% 2.6% 1.7% 1.6% 1.4% 1.4% 1.2%

CAR 18.4% 18.2% 17.2% 17.7% 17.2% 17.0% 16.7%

Leverage (x) 6.2 6.2 6.4 6.3 6.3 6.4 6.5

RWA/total assets (%) 106% 103% 100% 99% 100% 100% 100%

Profitability

RoA (%) 2.5% 2.3% 2.0% 2.1% 2.0% 2.0% 2.0%

RoE (%) 15.7% 14.0% 12.9% 12.9% 13.0% 13.0% 12.8%







14Page





Kotak Mahindra Life Insurance Company Ltd

Kotak Mahindra Life Insurance Co. (KMLife) is the fifth largest among the private insurance industry on individual APE basis. ForFY18, the company reported NBP of INR 34 bn, having grown at 15% over FY11-18.While FY11-14 period was muted, rather negative interms of growth, KMLife has registered robust growth numbers over FY15-18. While part of the growth can be attributed to the macrotailwinds on account of demonetization, etc. which accelerated the pace of financialization, increasing focus on individualbusiness, persistency and renewals is another factor. Since FY14, share of individual business in NBP terms has increased ~700 bps to58% while that of group business has declined to 42%. The company has witnessed robust traction in renewals too which have grown at22% CAGR over FY14-18. This, along with consistent focus on persistency, has yielded improved margins and overall profitability. ForFY18, KMLife reported VNB margins of 29.3% (>HDFC Life @ 23.2%) driven by, amongst other factors, capping of ULIP exposure.Also, staying true to the business of underwriting risk, the company is focused on building the protection business which as of FY18stood at 7% of the overall. In terms of opex, we believe the small scale offers opportunity to improve business process efficiencies. Forthis, the company is already investing in training Life Advisors and the sales hierarchy has been stepped up to ensure improvedproductivity.

In October 2017, KMBL acquired 26% stake held by Old Mutual Plc in its life insurance arm, thus effectively taking its total ownership inthe business to 100%. At INR 12.9 bn purchase price, the implied value of the life insurance arm works out be to ~INR 50 bn. Given FY18EV of INR 58.2 bn, the implied acquisition P/EV works out to be 0.9x (P/GWP = 0.8x) compared to average P/EV of 4.2x for the listedcomparables.

Going forward, we believe there are several levers that would play out favorably – scale, focus on improving persistency, cappingULIPs, increasing share of protection, KMB’s backing in terms of distribution and brand equity. Considering the bigger picture –insurance penetration level and overall formalization and financialization – KMLife is quite favorably placed. Solvency stands at >3x.


9.0 7.1 7.9 8.411.1

17.021.6

24.228.1

33.5

40.1

-40%

-20%

0%

20%

40%

60%

0

10

20

30

40

50

Expecting 18% CAGR in NBP-APE...

NBP-APE (INR Bn) Individual APE (INR Bn)

NBP-APE growth (%) Indi. APE growth (%)

77% 70%58% 51% 49% 48% 54% 58%

23% 30%42% 49% 51% 52% 46% 42%

0%

20%

40%

60%

80%

100%

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

Increasingly focusing on individual business...

Individual business Group business

39% 44% 52% 51% 53%

61% 56% 48% 49% 47%

0%

20%

40%

60%

80%

100%

FY14 FY15 FY16 FY17 FY18

Distribution mix (%) - Majority business is sourced through banca or direct channel...

Banca Agency and others

Par, 35%

Non-par, 29%

ULIP, 36%

Product mix (based on Individual NBP APE) (%)


Source: Company, KRChoksey ResearchSource: Company, KRChoksey Research


15Page


85.9 97.2 109.6 121.0 150.7 167.9 207.9 250.0 303.0 369.9 454.7

13% 13%10%

24%

11%

24%

20% 21% 22% 23%

0%

5%

10%

15%

20%

25%

30%

0

100

200

300

400

500

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

AUM has grown at 16% CAGR over FY11-18...

AUM (INR Bn) Growth (%)

0%

20%

40%

60%

80%

100%


Focus on persistency and renewals has yielded results...

13th month 25th month 37th month 49th month 61st month

Individual new business FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

Total number of policies (#) 72,442 86,899 1,69,479 1,59,960 1,86,251 2,59,917 2,98,979 3,37,934

Total premium (INR Bn) 4.1 3.7 6.9 6.4 7.5 10.6 14.4 19.7

Sum assured (INR Bn) 58.3 69.4 145.9 180.6 121.8 184.1 260.7 406.9

Premium per policy (INR) 56,091.3 42,506.1 40,625.1 40,198.6 40,233.4 40,924.8 48,051.9 58,350.2

Sum assured per policy (INR) 8,04,380 7,99,059 8,60,776 11,28,938 6,54,125 7,08,330 8,71,861 12,04,015

Group new business FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

Total number of policies (#) 160.0 708.0 774.0 942.0 869.0 996.0 1,066.0 705.0

Total premium (INR Bn) 1.2 3.5 5.0 6.3 7.9 11.5 14.1 14.3

Sum assured (INR Bn) 154.0 741.4 944.6 1,295.6 1,419.5 2,720.2 3,296.8 1,048.5

Premium per policy (INR Mn) 7.5 5.0 6.5 6.7 9.1 11.5 13.3 20.3

Sum assured per policy (INR Mn) 962.2 1,047.2 1,220.4 1,375.4 1,633.5 2,731.1 3,092.7 1,487.3









16Page


Peer valuations

Based on FY2018 financials (INR Mn) GWP EV MV MCAP / GWP MCAP / EV

ICICI Pru Life 2,70,688 1,87,880 5,58,720 2.1 3.0

SBI Life 2,53,542 1,90,700 6,55,200 2.6 3.4

HDFC Life 2,35,644 1,52,200 9,36,340 4.0 6.2

Average 2.9 4.2

Median 2.6 3.4

Kotak Life 65,990 58,240 3.1 3.5

^ implied ^ assumed

VNB margin (%) - peer comparison FY18 Calculating implied P/GWP (x) FY18

Kotak Mahindra Life Insurance 29.3% EV (INR Mn) 58,240

ICICI Prudential Life Insurance 16.5% P/EV (x) - assumed 3.5

SBI Life Insurance 16.2% MCAP (INR Mn) 2,03,840

HDFC Standard Life Insurance 23.2% GWP (INR Mn) 65,990

Bajaj Allianz Life Insurance 12.5% Implied P/GWP (x) 3.1







17Page


Kotak Mahindra Life Insurance Co. Ltd. (INR Mn)

REVENUE ACCOUNT FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Gross premium 30,380.5 39,716.8 51,395.5 65,986.7 83,190.8 1,05,076.9 1,31,426.8

(-) Reinsurance ceded 624.6 584.0 720.9 872.1 998.3 1,260.9 1,577.1

Net premium 29,755.9 39,132.9 50,674.6 65,114.7 82,192.6 1,03,815.9 1,29,849.7

Income from investments 26,393.5 5,159.4 23,918.8 17,590.7 21,636.2 26,981.0 33,158.0

Contribution from S/H's account 84.0 53.0 27.7 43.1 50.0 60.0 60.0

Other income 79.7 36.6 65.7 59.8 60.0 60.0 60.0

Total income 56,313.1 44,381.9 74,686.7 82,808.2 1,03,938.8 1,30,917.0 1,63,127.7

Commission 1,764.1 2,581.1 3,248.1 3,793.4 4,658.7 5,779.2 7,097.0

Opex related to insurance business 6,690.6 7,941.3 9,281.8 11,112.6 13,310.5 15,761.5 19,451.2

Service tax and GST 294.2 327.3 380.6 535.8 550.0 580.0 600.0

Total expenses 8,754.9 10,857.5 12,902.0 15,477.0 18,519.2 22,120.8 27,148.2

Benefits paid (net) 17,852.2 18,240.3 22,871.7 27,709.3 34,520.9 42,564.5 53,238.4

Change in valuation of liability 11,189.3 13,924.5 17,201.8 25,056.9 33,393.6 45,081.3 60,859.8

Provision for linked liabilities 16,055.0 -682.6 19,042.7 10,876.7 14,982.7 16,780.6 18,794.3

Surplus/(deficit) before tax 2,373.9 1,923.1 2,460.1 3,533.7 2,522.4 4,369.7 3,087.1

Provision for tax 218.6 158.8 220.8 367.1 264.9 458.8 324.1

Surplus/(deficit) after tax 2,155.4 1,764.4 2,239.4 3,166.5 2,257.6 3,910.9 2,762.9

PROFIT AND LOSS ACCOUNT FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Transfer from P/h's account 1,617.6 1,652.3 2,030.6 2,924.4 2,076.9 3,598.0 2,541.9

Income from investments 898.8 1,094.6 1,251.2 1,562.1 1,868.7 2,254.1 2,659.8

Total income 2,516.4 2,746.8 3,281.8 4,486.5 3,945.7 5,852.2 5,201.7

Total expenses 102.9 86.3 75.5 141.3 118.4 175.6 156.1

PBT 2,413.6 2,660.5 3,206.3 4,345.2 3,827.3 5,676.6 5,045.7

Tax expense 124.6 153.1 173.5 211.1 191.4 283.8 252.3

PAT 2,288.9 2,507.5 3,032.7 4,134.1 3,635.9 5,392.8 4,793.4


SOURCES OF FUNDS

Shareholders' funds

Share capital 5,102.9 5,102.9 5,102.9 5,102.9 5,102.9 5,102.9 5,102.9

Reserves and surplus 7,604.1 10,111.5 13,144.3 17,278.4 20,914.3 26,307.1 31,100.5

Sub-total 12,707.0 15,214.4 18,247.2 22,381.3 26,017.2 31,410.0 36,203.4

Policyholders' funds

Sub-total 1,39,031.6 1,51,844.3 1,89,758.2 2,25,213.9 2,75,013.9 3,38,618.0 4,20,408.6

Funds for future appropriation - linked liabilities 69.8 0.0 0.0 2,030.0 1,500.0 1,500.0 1,500.0

Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Sub-total 69.8 0.0 0.0 2,030.0 1,500.0 1,500.0 1,500.0

TOTAL 1,51,808.3 1,67,058.7 2,08,005.3 2,49,625.1 3,02,531.1 3,71,528.0 4,58,111.9

APPLICATION OF FUNDS

Investments

Shareholders' 10,519.7 13,996.4 15,875.5 19,049.3 22,478.1 26,524.2 31,298.6

Policyholders' 42,863.1 57,305.1 76,397.7 1,04,454.6 1,38,924.6 1,84,769.8 2,45,743.8

Assets held to cover linked liabilities 97,302.4 96,550.1 1,15,592.8 1,26,469.5 1,41,645.8 1,58,643.3 1,77,680.5

Loans 1,677.3 1,507.6 1,531.1 1,306.2 1,400.0 1,500.0 1,550.0

Fixed assets 397.3 440.7 618.1 653.9 680.0 700.0 720.0

Net current assets -951.4 -2,741.2 -2,010.0 -2,308.4 -2,597.5 -609.3 1,119.1

TOTAL 1,51,808.3 1,67,058.7 2,08,005.3 2,49,625.1 3,02,531.1 3,71,528.0 4,58,111.9







18Page


Key metrics and assumptions (INR Mn) FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Persistency

13th month 80.9% 82.0% 82.6% 85.5%

25th month 75.7% 74.1% 73.9% 73.8%

37th month 73.2% 71.4% 69.3% 69.1%

49th month 54.2% 71.0% 68.8% 67.1%

61st month 30.9% 49.2% 62.7% 61.8%

NBP 15,402 22,097 28,497 34,042 41,872 52,765 66,961

NBP-APE 11,093 17,030 21,593 24,236 28,144 33,546 40,054

Reinsurance rate (%) 2.1% 1.5% 1.4% 1.3% 1.2% 1.2% 1.2%

Commission ratio (%) 5.8% 6.5% 6.3% 5.7% 5.6% 5.5% 5.4%

Opex ratio (%) 22.0% 20.0% 18.1% 16.8% 16.0% 15.0% 14.8%

Total expense ratio (%) 27.8% 26.5% 24.4% 22.6% 21.6% 20.5% 20.2%

Claims ratio (%) 60.0% 46.6% 45.1% 42.6% 42.0% 41.0% 41.0%

Claims settlement ratio (%) 98.3% 98.5% 99.5% 99.3%

Conservation ratio (%) 67.5% 68.8% 67.2% 73.1% 75.0% 77.0% 77.0%

Expenses / total income (S/h's account) (%) 4.1% 3.1% 2.3% 3.1% 3.0% 3.0% 3.0%

Investment yield on P/h's funds (%) 21.6% 3.1% 14.7% 8.9% 9.0% 9.2% 9.2%

Investment yield on S/h's funds (%) 9.6% 8.9% 8.4% 8.9% 9.0% 9.2% 9.2%

Total AUM 1,50,685 1,67,852 2,07,866 2,49,973 3,03,049 3,69,937 4,54,723







19Page


Peers’ growth comparison FY13 FY14 FY15 FY16 FY17 FY18

Kotak Mahindra Life Insurance Company

GP -5.4% -2.8% 12.5% 30.7% 29.4% 28.4%

NP -5.8% -2.7% 12.2% 31.5% 29.5% 28.5%

NBP 2.0% 7.0% 21.1% 43.5% 29.0% 19.5%

APE 11.5% 5.6% 32.5% 53.5% 26.8% 12.2%

FYP 13.4% 5.3% 34.5% 55.1% 26.5% 11.1%

RP -10.3% -10.1% 4.8% 17.6% 30.0% 39.5%

SP -12.9% 10.0% -0.8% 17.6% 36.3% 42.0%

AUM 12.7% 10.4% 24.5% 11.4% 23.8% 20.3%

S/h's AUM 46.3% 29.3% 29.2% 33.0% 13.4% 20.0%

Linked AUM 6.8% 0.7% 19.6% -0.8% 19.7% 9.4%

Non-linked AUM 30.5% 39.6% 35.8% 33.7% 33.3% 36.7%

ICICI Prudential Life Insurance Company

GP -3.4% -8.2% 23.2% 25.2% 16.6% 21.1%

NP -3.7% -8.5% 23.4% 25.3% 16.6% 21.0%

NBP 8.3% -21.8% 41.8% 26.9% 16.2% 17.1%

APE 14.0% -21.5% 39.5% 9.9% 27.2% 16.1%

FYP 14.8% -21.5% 39.2% 7.7% 28.8% 15.9%

RP -8.9% -0.7% 15.1% 24.3% 16.9% 23.2%

SP -21.6% -24.0% 60.0% 142.6% -17.5% 22.2%

AUM 4.7% 8.7% 24.2% 3.6% 18.0% 13.9%

S/h's AUM 41.5% 8.8% 9.4% 6.1% 6.8% 16.8%

Linked AUM -0.5% 4.8% 24.0% 0.7% 16.7% 11.0%

Non-linked AUM 23.9% 28.1% 30.4% 14.1% 25.8% 23.0%

SBI Life Insurance Company

GP -20.9% 2.7% 20.7% 23.0% 32.8% 20.6%

NP -20.6% 2.6% 19.9% 22.6% 33.1% 20.7%

NBP -20.6% -2.3% 9.2% 28.5% 42.7% 8.1%

APE 9.4% 11.5% 10.8% 37.4% 35.3% 27.6%

FYP 19.4% 14.5% 11.1% 39.0% 34.1% 31.1%

RP -20.2% 7.7% 29.3% 18.8% 24.7% 32.3%

SP -40.9% -19.4% 6.3% 12.6% 59.0% -28.2%

AUM 11.8% 12.4% 23.3% 12.2% 23.1% 19.4%

S/h's AUM 33.1% 29.9% 30.5% 16.1% 20.5% 16.7%

Linked AUM 0.3% 7.7% 21.7% 3.5% 23.7% 23.2%

Non-linked AUM 28.0% 16.8% 24.4% 21.4% 22.8% 16.0%

HDFC Standard Life Insurance Company

GP 11.0% 6.5% 22.9% 10.0% 19.2% 11.8%

NP 10.9% 6.4% 23.3% 9.6% 19.1% 11.8%

NBP 15.0% -9.0% 36.0% 18.1% 34.1% 15.0%

APE 15.4% -22.2% 26.2% 13.5% 13.0% 15.0%

FYP 15.5% -24.3% 24.3% 12.6% 8.4% 15.0%

RP 8.5% 16.5% 16.4% 5.2% 9.4% 9.1%

SP 13.8% 27.2% 52.3% 24.4% 60.6% 15.0%

AUM 23.9% 26.7% 32.6% 10.7% 23.6% 16.3%

S/h's AUM 41.5% 93.8% 35.9% 20.2% 22.9% 10.0%

Linked AUM 20.0% 20.7% 31.3% 1.8% 17.7% 16.5%

Non-linked AUM 34.3% 37.1% 35.4% 29.9% 34.1% 16.5%







20Page

Kotak Securities Ltd

Kotak Securities Ltd. (KSec) is the broking arm of KMBL and a leading firm in the secondary market, offering services to retail andinstitutional investors. The company commands 8.5% market share in the cash segment while the overall market share stands at2%, which implies KSec derives a larger part of the business from the more profitable cash segment. As of FY18, the company hadreported ADV of INR 136.9 bn, having grown at 17% CAGR over FY11-18. Going forward, we are factoring in 30-32% CAGR over FY18-21Eon account of buoyant markets and increased participation. Given the financialization theme, capital markets participation is poised torise as savings are channelized into more formal avenues comprising of equities and debt, directly or indirectly. Unlike mostbrokerage, KSec retains large portion of the balance sheet in liquid cash (36%) – we believe this may come in handy as and when capitalrequirement arises elsewhere in the group.


-13% -12%

11%

82%

3%

23%

52%

32% 32% 30%

-20%

0%

20%

40%

60%

80%

100%

0

50

100

150

200

250

300

350

Expect >30% CAGR in ADV on back of healthy capital market participation…

ADV (INR Bn) Growth (%)

0

1

2

3

4

5

Intense competition has led to declining yields…

Average brokerage per transaction (bps)

No. of unique active clients (000s) (source: www.nse.com)

Company name FY14 FY15 FY16 FY17 FY18 FY19 (YTD)

ICICI Securities Ltd 501 595 560 618 798 820

Growth (%) 19% -6% 10% 29%

Zerodha 18 30 62 166 541 675

Growth (%) 73% 104% 167% 227%

HDFC Securities Ltd 279 348 408 483 602 635

Growth (%) 25% 17% 18% 25%

Sharekhan Ltd 275 343 336 366 535 553

Growth (%) 25% -2% 9% 46%

Axis Securities Ltd 77 120 184 259 405 393

Growth (%) 56% 53% 41% 56%

Angel Broking Pvt Ltd 140 160 171 230 364 389

Growth (%) 14% 7% 35% 58%

Kotak Securities Ltd 223 268 247 274 369 389

Growth (%) 20% -8% 11% 35%

Motilal Oswal Securities Ltd 123 153 166 207 308 320

Growth (%) 24% 9% 25% 48%

Karvy Stock Broking Ltd 126 172 167 181 245 259

Growth (%) 37% -3% 9% 35%

India Infoline Ltd. 235 286 263 198 225 233

Growth (%) 22% -8% -25% 14%

SBICAP Securities Ltd 68 114 126 169 214 211

Growth (%) 67% 11% 35% 26%








21Page

Kotak Mahindra Bank LtdKotak Securities (INR Mn)


Revenue from operations 5,971.4 5,678.6 7,965.7 10,026.2 12,544.2 15,458.8 18,618.8

Brokerage income 5,449.5 5,147.0 6,649.8 8,172.9 10,134.9 12,567.7 15,149.4

Fees income 521.9 531.7 1,315.9 1,853.3 2,409.3 2,891.1 3,469.3

Revenue from other operating activities 3,022.5 3,318.0 3,172.4 5,153.8 6,117.8 7,127.7 8,299.0

Interest income 2,274.3 2,283.7 2,782.6 4,175.6 5,367.8 6,377.7 7,549.0

Profit on trading in securities 748.2 1,034.4 389.8 978.3 750.0 750.0 750.0

Total revenue from operations 8,993.9 8,996.7 11,138.1 15,180.0 18,662.0 22,586.5 26,917.7

Other income 604.5 749.1 1,248.5 1,365.5 1,253.9 1,341.6 1,416.0

Total revenue 9,598.4 9,745.7 12,386.6 16,545.5 19,915.9 23,928.1 28,333.8

Total expenses 4,846.0 5,672.3 6,426.7 7,522.9 8,651.3 9,862.5 11,243.3

EBIT 4,752.4 4,073.4 5,959.9 9,022.6 11,264.5 14,065.5 17,090.5

Finance cost 338.4 263.7 527.0 1,062.8 1,676.2 1,931.6 2,317.9

PBT 4,414.0 3,809.7 5,432.9 7,959.8 9,588.3 12,133.9 14,772.5

Tax 1,518.2 1,303.1 1,820.3 2,650.2 3,192.5 4,040.1 4,918.6

PAT 2,895.8 2,506.6 3,612.7 5,309.5 6,395.8 8,093.9 9,853.9



Shareholders' funds

Share capital 16.0 16.0 16.0 16.0 16.0 16.0 16.0

Reserves & surplus 23,824.2 26,330.8 29,943.5 35,253.0 41,648.8 49,742.7 59,596.6

Total shareholders' funds 23,840.2 26,346.8 29,959.5 35,269.0 41,664.8 49,758.7 59,612.6

ST Borrowings 4,685.5 948.2 8,668.5 21,285.1 23,413.6 28,096.3 33,715.6

Trade payables 13,079.5 11,257.0 22,164.9 22,841.5 23,069.9 23,300.6 23,533.6

Other liabilities and provisions 2,062.1 1,116.6 1,258.6 2,096.3 2,096.3 2,096.3 2,096.3

TOTAL 43,667.3 39,668.6 62,051.4 81,491.9 90,244.7 1,03,252.0 1,18,958.2

ASSETS

Fixed assets 733.4 611.4 585.6 628.2 628.2 628.2 628.2

Cash & cash equivalent 16,068.6 14,105.6 22,439.9 29,705.2 32,488.1 37,170.7 42,824.9

Trade receivables 10,840.1 9,748.9 20,385.1 17,012.1 17,012.1 17,012.1 17,012.1

Investments 8,296.6 11,403.6 12,626.0 14,062.8 15,469.0 17,016.0 18,717.5

Other assets 7,728.6 3,799.2 6,014.8 13,452.2 16,026.4 20,217.9 25,206.2

Margin funding receivables 0.0 0.0 0.0 6,631.4 8,620.8 11,207.1 14,569.2

TOTAL 43,667.3 39,668.6 62,051.4 81,491.9 90,244.7 1,03,252.0 1,18,958.2

Profitability ratios FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Operating margin (%) 38.5% 32.4% 31.6% 37.5% 49.3% 41.4% 47.2% 53.7% 56.3% 58.6% 60.2%

EBIT Margin (%) 39.5% 32.7% 31.6% 37.6% 49.5% 41.8% 48.1% 54.5% 56.6% 58.8% 60.3%

PAT margin (%) 24.7% 20.6% 18.9% 25.6% 30.2% 25.7% 29.2% 32.1% 32.1% 33.8% 34.8%

ROE (%) 10.7% 7.2% 6.1% 8.0% 12.9% 10.0% 12.8% 16.3% 16.6% 17.7% 18.0%

Cost/income ratio (excl. finance cost) (%)

60.5% 67.3% 68.4% 62.4% 50.5% 58.2% 51.9% 45.5% 43.4% 41.2% 39.7%

Cost/income ratio (%) 63.2% 68.6% 68.9% 62.6% 54.0% 60.9% 56.1% 51.9% 51.9% 49.3% 47.9%









22Page





0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

-60%

-40%

-20%

0%

20%

40%

60%

80%

Expect ROEs to range between 35-40% on back of scale-up and equity-focus..

ROE (%) Fee/Avg AUM (%)

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

FY15 FY16 FY17 FY18

ROE comparison

Reliance Nippon AMC ICICI AMC

HDFC AMC SBI MF

UTI MF Kotak AMC

Kotak Mahindra Asset Management Company Ltd.

Kotak Mahindra AMC (Kotak AMC) is one of the fastest growing AMCs in India with an AUM of INR 1.15 tn as of FY18, having grown at21% CAGR over FY11-18. In the past, the AMC had focused mainly on the debt segment. However, since FY15 (also the time when NileshShah joined), there has been a drastic shift in focus towards equity and growth has been more prominent as equity AUM climbed >14xto INR 445 bn by FY18 (from INR 31 bn in FY14). As of FY18, the AUM was 38.5% equity and 61.5% debt (vs. >50% equity for HDFC AMC).Going forward, focus is on increasing the share of equity segment which has grown at a CAGR of 70% over the last 5 years along withsimultaneous improvement in profitability. Given the scope for scaling up and focus on profitable segments, we estimate thecompany to deliver consistent ROEs in the range of 35-40% over FY19-21. Currently the 7th largest, Kotak AMC would like to improve onthis and be amongst the top quartile. Given the industry opportunity and the credibility of the Kotak Group, we are estimating anAUM of INR 3.2 tn, growing at 40% CAGR over FY19-21E.


0%

10%

20%

30%

40%

50%

60%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Strong AUM growth driven by equity-focus

AUM (INR Bn) Growth (%)

14.4% 11.1% 9.9% 8.7% 16.1% 25.0% 25.8%38.5%

85.6% 88.9% 90.1% 91.3% 83.9% 75.0% 74.2%61.5%

0%

20%

40%

60%

80%

100%


Share of equity is expected to rise (HDFC AMC at >50%)

Equity mix (%) Debt and others mix (%)





23Page


FY18 FY17 FY16

Kotak AMC - Performance snapshot

BenchmarkReturn

(%)

Benchmark return

(%)

Outperformance

(%)

Return (%)

Benchmark return

(%)

Outperformance

(%)

Return (%)

Benchmark return

(%)

Outperformance

(%)

Equity schemes

Kotak 50 Nifty 50 9.0% 11.8% -2.7% 18.7% 18.6% 0.1% -4.6% -8.8% 4.3%

Kotak BalanceCRISIL Hybrid 35+65 -Aggressive Index

6.3% 10.0% -3.7% 23.3% 16.1% 7.2% -2.8% -2.9% 0.1%

Kotak Classic Equity Nifty 100 16.4% 12.2% 4.2% 24.0% 20.9% 3.1% -9.3% -8.1% -1.3%

Kotak Emerging Equity Scheme

S&P BSE Mid Small Cap 11.0% 16.8% -5.7% 39.6% 35.1% 4.4% -2.3% -3.3% 1.1%

Kotak Equity Arbitrage Fund

Nifty 50 Arbitrage Index 6.2% 4.4% 1.8% 6.3% 6.1% 0.2% 6.8% 8.0% -1.2%

Kotak Midcap Fund Nifty Midcap 100 11.0% 10.3% 0.7% 33.7% 34.9% -1.2% 1.8% -1.9% 3.7%

Kotak Opportunities Fund Nifty 500 9.3% 12.9% -3.6% 30.6% 23.9% 6.7% -5.6% -7.5% 1.9%

Kotak Select Focus Fund Nifty 200 10.7% 12.4% -1.7% 29.7% 22.3% 7.4% -2.8% -8.1% 5.3%

Kotak Taxsaver Nifty 500 6.3% 12.9% -6.6% 29.8% 23.9% 5.9% -8.0% -7.5% -0.5%

Kotak Equity Savings Fund75% Nifty 50 ArbitrageIndex and 25% Nifty 50

8.3% 6.3% 2.1% 11.1% 13.9% -2.8% - - -

Kotak Infrastructure andEconomic Reform Fund

S&P BSE 100 10.2% 12.1% -2.0% 30.7% 21.2% 9.5% - - -

Debt schemes

Kotak Banking and PSU Debt Fund - Reg - Growth

Crisil Short Term BondFund Index

6.5% 6.1% 0.4% 9.3% 9.1% 0.2% 8.3% 8.0% 0.3%

Kotak Bond Scheme - Reg -Growth

Crisil Composite BondFund Index

2.7% 5.1% -2.4% 10.1% 11.1% -1.0% 5.3% 8.2% -2.9%

Kotak Bond Short Term Plan - Reg - Growth


5.5% 6.1% -0.6% 9.1% 9.1% 0.0% 7.9% 8.4% -0.5%

Kotak Flexi Debt Scheme -Reg - Growth


6.2% 5.1% 1.1% 11.2% 11.1% 0.1% 7.8% 8.2% -0.4%

Kotak Floater - ST - Reg -Growth

Crisil Liquid Fund Index 6.8% 6.8% -0.1% 7.3% 7.1% 0.2% 8.3% 8.0% 0.2%

Kotak Gilt - InvestmentRegular Plan - Growth

I-Sec Composite GiltIndex

3.3% 5.1% -1.7% 11.5% 10.9% 0.6% 5.7% 8.2% -2.6%

Kotak Income OpportunitiesFund - Reg - Growth


6.5% 6.1% 0.4% 10.0% 9.1% 0.9% 9.1% 8.4% 0.6%

Kotak Liquid Scheme - Reg- Growth

Crisil Liquid Fund Index 6.8% 6.8% -0.1% 7.2% 7.1% 0.1% 7.2% 8.0% -0.8%

Kotak Treasury AdvantageFund - Reg - Growth

Crisil Liquid Fund Index 6.7% 6.8% -0.1% 7.8% 7.1% 0.7% 8.4% 8.0% 0.4%

Kotak Medium Term Fund –Reg- Growth


6.6% 5.1% 1.5% 10.3% 11.1% -0.8% - - -

Kotak Corporate Bond Fund Reg – Growth


6.8% 5.1% 1.7% 9.1% 11.1% -2.0% - - -

Kotak Low Duration Fund –Reg - Growth

Crisil Liquid Fund Index 7.0% 6.8% 0.2% 8.8% 7.1% 1.7% - - -

Kotak Monthly Income plan

CRISIL Hybrid 85+15 -Conservative Index

5.9% 6.2% -0.4% 15.1% 12.3% 2.8% - - -







24Page


Kotak AMC (INR Mn)


Revenue from operations 1,223.9 2,384.9 2,861.2 5,019.9 6,462.3 9,047.3 12,666.2

Other income 32.6 14.6 51.3 169.1 50.0 50.0 50.0

Total revenue 1,256.4 2,399.6 2,912.4 5,189.0 6,512.3 9,097.3 12,716.2

Employee expenses 483.0 529.2 638.6 771.3 969.4 1,187.5 1,424.9

Other expenses 1,132.5 1,150.9 1,687.9 3,173.2 4,039.0 5,654.6 7,916.4

Total expenses 1,615.5 1,680.1 2,326.5 3,944.5 5,008.3 6,842.0 9,341.3

PBT -359.1 719.4 586.0 1,244.5 1,504.0 2,255.3 3,374.9

Tax 2.7 126.1 203.6 432.4 511.4 766.8 1,147.5

PAT -361.8 593.3 382.3 812.1 992.7 1,488.5 2,227.4



Shareholders' funds

Share capital 383.0 383.0 383.0 298.0 298.0 298.0 298.0

Reserves & surplus 213.3 797.9 1,180.2 1,975.5 2,968.2 4,456.7 6,684.1

Total shareholders' funds 596.3 1,180.9 1,563.2 2,273.5 3,266.2 4,754.7 6,982.1

ST borrowings 138.7 0.0 0.0 0.0 0.0 0.0 0.0

Trade payables 105.9 117.1 248.4 346.1 380.7 418.8 460.7

Other liabilities & provisions 191.9 229.0 372.3 863.8 863.8 863.8 863.8

TOTAL 1,032.8 1,527.0 2,183.8 3,483.5 4,510.8 6,037.3 8,306.6

ASSETS

Fixed assets 222.4 205.9 190.3 176.0 164.0 152.0 150.0

Cash & cash equivalent 0.9 12.5 1.6 62.8 202.3 179.2 108.0

Trade receivables 10.0 214.5 286.1 571.2 571.2 571.2 571.2

Investments 275.0 504.1 1,260.0 2,082.2 3,123.3 4,685.0 7,027.5

Other assets 524.5 589.9 445.9 591.3 450.0 450.0 450.0

TOTAL 1,032.8 1,527.0 2,183.8 3,483.5 4,510.8 6,037.3 8,306.6

KEY METRICS FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Revenue growth (%) -24.4% 91.0% 21.4% 78.2% 25.5% 39.7% 39.8%

PAT growth (%) -208.4% -264.0% -35.6% 112.4% 22.2% 49.9% 49.6%

AUM growth (%) 8.2% 41.8% 40.8% 49.7% 40.0% 40.0% 40.0%

Fee/Avg AUM (%) 0.32% 0.44% 0.37% 0.44% 0.40% 0.40% 0.40%

ROE (%) -49.5% 66.8% 27.9% 42.3% 35.8% 37.1% 38.0%

PAT margin (%) -28.8% 24.7% 13.1% 15.7% 15.2% 16.4% 17.5%









25Page


Please send your feedback to [email protected] us at www.krchoksey.com

Kisan Ratilal Choksey Shares and Securities Pvt. LtdRegistered Office:

1102, Stock Exchange Tower, Dalal Street, Fort, Mumbai – 400 001.Phone: +91-22-6633 5000; Fax: +91-22-6633 8060.

Corporate Office: ABHISHEK, 5th Floor, Link Road, Andheri (W), Mumbai – 400 053.

Phone: +91-22-6696 5555; Fax: +91-22-6691 9576.

ANALYST CERTIFICATION:

We, Raghav Garg (B.Com, M.Com (Applied Finance)), research analyst and Anushka Chhajed (B.com & CA), research associate, author and the name subscribed to this report, hereby certify that all of the views expressed in thisresearch report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in thisreport.

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KRChoksey Shares and Securities Pvt. Ltd (hereinafter referred to as KRCSSPL) is a registered member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited and MCX Stock Exchange Limited. KRCSSPL is aregistered Research Entity vides SEBI Registration No. INH000001295 under SEBI (Research Analyst) Regulations, 2014.

We submit that no material disciplinary action has been taken on KRCSSPL and its associates (Group Companies) by any Regulatory Authority impacting Equity Research Analysis activities.

KRCSSPL prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analyst covers.

The information and opinions in this report have been prepared by KRCSSPL and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipientand may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of KRCSSPL. While we would endeavor toupdate the information herein on a reasonable basis, KRCSSPL is not under any obligation to update the information. Also, there may be regulatory, compliance or other reasons that may prevent KRCSSPL from doing so. Non-ratedsecurities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or KRCSSPL policies, in circumstances where KRCSSPL might be acting in anadvisory capacity to this company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein issolely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customerssimultaneously, not all customers may receive this report at the same time. KRCSSPL will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and taxadvice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must maketheir own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Therecipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. KRCSSPL accepts no liabilities whatsoeverfor any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associatedbefore investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. Our employees in salesand marketing team, dealers and other professionals may provide oral or written market commentary or trading strategies that reflect opinions that are contrary to the opinions expressed herein, .In reviewing these materials, youshould be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest.

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It is confirmed that, Raghav Garg (B.Com, M.Com (Applied Finance)), research analyst and Anushka Chhajed (B.com & CA), research associate, author of this report have not received any compensation from the companies mentionedin the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific brokerage service transactions.

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Kotak Mahindra Bank

Date CMP (INR) TP (INR) Recommendation

30-Aug-18 1276 1544 BUY

20-Jul-18 1333 1526 BUY

02-May-18 1209 1402 BUY

22-Jan-18 1071 1172 ACCUMULATE

26-Oct-17 1014 1104 ACCUMULATE

21-Jul-17 980 1104 ACCUMULATE

27-Jan-16 795 953 BUY

26-Oct-16 820 953 BUY

25-July-16 760 882 ACCUMULATE

12-May-16 739 882 ACCUMULATE

19-Jan-16 669 721 HOLD

03-Nov-15 685 720 HOLD

13-Apr-15 1,422 1,400 REDUCE

21-Jan-15 1,389 1,400 HOLD

7-Jan-15 1,251 1,260 HOLD

Rating Legend

Our Rating Upside

Buy More than 15%

Accumulate 5% - 15%

Hold 0 – 5%

Reduce -5% – 0

Sell Less than -5%

mailto:[email protected]

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Kotak Mahindra Bank Ltd. - Moneycontrol.comstatic-news.moneycontrol.com/static-mcnews/2018/08/Kotak-Mahindra-Bank_300818.pdfPage 5 Kotak Mahinda Bank Ltd (banking entity) –811 an

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