Kotak Mahindra Bank Q1 Results Preview: Asset Quality, Margin Pressure To Weigh

Deterioration in asset quality due to elevated delinquencies in the microfinance institution segment and continuous pressure on margins is likely to weigh on Kotak Mahindra Bank's earnings for the June quarter, analysts said.

The private sector bank, which will announce its June-quarter earnings on Saturday, is likely to report a standalone net profit of Rs 3,496.76 crore, down 44% year-on-year, according to a poll by Bloomberg. In the March quarter, the bottom-line was Rs 3,552 crore.

"PAT may fall QoQ by 6.2% due higher opex (operational expenses) and lower other income. Asset quality may deteriorate with GNPAs rising by 2 bps QoQ," Prabhudas Liladher said in a pre-earnings note.

• Net profit seen declining 44% to Rs 3,496.76 crore

• NII estimated to rise 8% to Rs 7390.9 crore

• Provisions seen at Rs 823.25 crore

According to a poll by Bloomberg, the private sector bank's net interest income is seen at Rs 7,390.90 crore, up by 8% on-year. In the quarter ended March, NII was at Rs 7,284 crore.

Consequently, margins are also likely to weigh on the bank's earnings. The fall in yield on assets will not be completely off set by the fall in cost of deposits, which will lead to a contraction in the bank's NIM, Systematix Institutional Equities said.

"Expect loan growth of 4-5% QoQ and 15% YoY. Margins could decline by 5 bps, led by lower yields on EBLR-linked loans, partly offset by benefits from the lifting of supervisory restrictions and SA rate-cut. Build in credit costs of 75 bps as MFI delinquencies remain elevated, with RoA at 2.15%," Dolat Capital Market Research said.

Most brokerages expect the bank's slippages to decrease sequentially and maintain its downward trend and also believe provisions are also expected to decrease sequentially.

However, higher delinquencies in the MFI segment may weigh on its asset quality. Further, slower fees would also weigh on its earnings.

The bank's fee income is expected to be lower on a sequential basis due to seasonality but growth will remain healthy on annual basis.

"The sequential growth in employee expenses is expected to be higher than the advances growth, driven by annual increments. Other opex growth is expected to be in line with the advance’s growth," Systematix said.