Kotak Mahindra Bank Q1: Brokerages cheer 67% profit surge, stable asset quality

Kotak Mahindra Bank Q1 Results: Morgan Stanley has given an ‘equal-weight’ rating to the stock with a target price of Rs 2,250 per share, emphasizing the bank’s consistent performance

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Kotak Mahindra Bank has enthused analysts with its stable asset quality and profit growth for the quarter ended June 2023. Following the results, brokerages raised their price targets 7-22 percent higher than the last closing price of Rs 1,970.

The stock, however, opened in the red on July 24 and was trading 2 percent down at Rs 1,926.55 around 9.40am. It had gained 4 percent in the week ahead of results.

The bank has reported a standalone profit of Rs 3,452.3 crore for Q1, growing 66.7 percent over the year-ago period, despite rise in provisions and contingencies.

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Kotak Mahindra Bank‘s net interest income grew 32.7 percent on-year to Rs 6,233.7 crore, with net interest margin at 5.57 percent. Loans grew 19 percent, while deposits surged over 22 percent. Asset quality was largely stable with the gross NPA (non-performing assets) falling 1 basis point sequentially to 1.77 percent, and net NPA rising 3 bps to 0.40 percent, said the bank in an exchange filing.

Meanwhile, net interest margin was flat sequentially at 5.57 percent.

Morgan Stanley has given an ‘equal-weight’ rating to the stock with a target price of Rs 2,250 per share, emphasising the bank’s consistent performance. The broking firm has highlighted the significant acceleration in deposit growth during the quarter and anticipates strong potential for operating leverage going ahead.

Bernstein, on the other hand, has a ‘market-perform’ rating for the bank with a target price of Rs 2,100 per share. It has attributed its on-year earnings per share (EPS) growth of 67 percent to a healthy NIM (net interest margin), which was in line with estimates. However, there is an expectation of a slight sequential decline in NIM for the large private banks due to a surge in term deposits, it noted.

JPMorgan has given a ‘neutral’ rating to the stock with a target price of Rs 2,070 per share. “Valuations have de-rated and catch-up to historical premium will need to sustain delivery. Any positive market reaction in the near term could be influenced by potential M&A actions,” it said.

In contrast, Jefferies holds a ‘buy’ rating for Kotak Mahindra Bank with a target price of Rs 2,400 per share. Although loan growth has slowed, the rise in high-yielding unsecured loans has positively impacted margins, it said.

Domestic broking firm Motilal Oswal Financial Services has reiterated its ‘neutral’ rating with a target price of Rs 2,170. “We raise our earnings estimates by 7 percent/5 percent for FY24/25 and expect the bank to deliver RoA/RoE of 2.4 percent/14.3 percent in FY25,” the firm said.

Last week, in a letter to shareholders, the bank’s managing director and chief executive officer Uday Kotak said that he will likely take a non-executive role soon. He is set to retire as the top boss of the bank in December 2023 and his successor has not been announced yet.

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