Brokerages upbeat on Kotak Mahindra Bank after Q4 profit surges 26%

Kotak Bank’s net interest income (NII) for Q4 FY23 increased to Rs 6,103 crore, from Rs 4,521 crore in Q4 FY22, up 35 percent

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Kotak Mahindra Bank shares opened lower on May 2 even as the bank beat Street estimates and reported a 26 percent jump in standalone net profit at Rs 3,495 crore for the March quarter. A poll of brokerages had estimated net profit at Rs 2,925.7 crore for the fourth quarter.

The private lender’s net interest income (NII) for Q4 FY23 increased to Rs 6,103 crore, from Rs 4,521 crore in Q4 FY22, up 35 percent. Net interest margin (NIM) was 5.33 percent for FY23 and 5.75 percent for Q4 FY23, the bank said in a press release.

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However, overall corporate credit growth in the banking system has not been very strong currently as the capacity creation is yet to pick up, said Kotak Mahindra Bank’s Whole Time Director KVS Manian.

“Broadly speaking, we are still not seeing very strong capacity creation and therefore loan demand arising out of that,” he said in the earnings call.

At 9:25 am, the stock was quoting at Rs 1,917.70 on the NSE, lower by 1.09 percent from previous close.

Also Read: Kotak Mahindra Bank Q4 net profit rises 26% to Rs 3,495 crore, beats estimates

Moreover, CASA ratio (ratio of deposits in current and saving accounts to total deposits) fell to 52.8 percent for FY23 from 60.7 percent in FY24.

Here’s how brokerages are seeing the numbers:

JPMorgan has a Neutral rating with a target of Rs 2,070 per share. The firm believes that the bank’s operating conditions remain favorable, with standalone net income ahead of expectations due to a net interest margin (NIM) beat and lower operational expenses.

Macquarie has also given a Neutral rating with a target of Rs 1,860 per share. “Corporate loan growth remains weak. Need to monitor the bank’s loan growth and deposit growth closely, as both below expectations,” the firm said. The bank’s valuation of 2.7x FY25 P/BV remains high, it added.

Also Read: Uday Kotak’s reappointment in best interest of stakeholders: Kotak Mahindra Bank

On the other hand, Goldman Sachs has a Buy rating with a target of Rs 2,513 per share. Goldman Sachs’ analysts believe that the bank’s margins are unlikely to drop below 5 percent and that management has good visibility to sustain that level or above in FY24.

“The bank’s asset quality remained fairly strong, and the bank’s appetite for risk has improved. Digital would be a big focus for the bank,” they said.

Jefferies, too, has a Buy rating with a target of Rs 2,400 on the stock. Wider NIMs, high growth in unsecured loans, and strong asset quality is what Jefferies likes about the stock.

However, its analysts found that the decline in core savings deposit and weaker earnings for most subsidiaries was disappointing. “Pick-up in core deposit growth was key to lifting loan growth,” they said.

The only brokerage that has downgraded the stock is CLSA, from Buy to Outperform. This is because the stock has gained over 17 percent since March. “Improving retail deposit momentum would be key,” CLSA said, pegging the target at Rs 2,150.

Going forward, all analysts and brokerages are keenly monitoring possible M&A (merger & acquisition) of Kotak Mahindra Bank with IDBI Bank. Kotak Bank is among those that have submitted expressions of interest in picking up a majority stake in state-owned IDBI Bank’s divestment process.

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