Wednesday, July 28, 2010

>Kotak - Lending biz improves, but all others in a weak spot

Kotak Mahindra Bank - Lending biz improves sharply, but all others in a weakspot [Dipankar Choudhury, Manish Shukla] Q1FY11 results, which were in line with our estimates on a headline basis, continue to reflect the trends visible for the last few quarters and could sustain for some time. The bank reported consolidated loan growth of 42% YoY driven bysecured retail and corporate lending, and a NIM of 5.7% that was down 40bps QoQ. The bank in their earnings call guided for a 30-35% loan growth for FY11E, which they had earlier estimated at mid-twenties, but also indicated that margins could correct to 5-5.5% despite the capital infusion expected soon.

HDFC Bank – Signs of strength in growth, costs stabilising [Dipankar Choudhury, Manish Shukla] We maintain Buy on HDFC Bank after increasing the target price to INR 2,090 from INR 2,050. The bank with its high share of low cost deposits and largely floating rate assets is the best play in a rising interest rate environment. Loan growth from both retail and short-term wholesale loans remains strong. We believe that operating cost ratios could improve further due to productivity improvement from the erstwhile Centurion network.

Yes Bank -Strong asset growth, but CASA remains low [Manish Shukla, Dipankar Choudhury] We maintain Hold on YES Bank with a target price of INR285. The bank continuesto gain good traction in corporate loans, and core fee income growth is also strong. Operating expenses are likely to rise, and the low share of CASA remains aconcern. Trading at 2.8x FY11E P/B, the stock appears fairly priced.

Sector & Company News
** RBI may up capital ratio for banks
** HDFC, Kotak to rework profit forecast for insurance arms
** Yes Bank to raise Rs 15bn tier II capital

To read the full report: INDIAN BANKS