Kotak Mahindra Bank reports healthy Q1 earnings – should you Buy? Brokerages recommend this

Amid healthy earnings in the first quarter of the financial year 2022-23 (Q1FY23), most of the brokerages, being bullish on Kotak Mahindra Bank, expect the share price of the private lender may surge up to 21 per cent on a long-term basis. 

The stock on Monday reacted positively to June quarter earnings by surging over 1 per cent to touch a day’s high level of Rs 1,847 per share. However, it succumbed to weak market pressure to slip over 2 per cent to Rs 1786 per share on the BSE intraday minutes before the close. 

Kotak Mahindra Bank (Kotak) reported net profit growth of over 26 per cent year-on-year (YoY), led by strong loan book growth and margin expansion. The bank’s loans increased by around 29 per cent YoY, led by retail loans. NIM (net interest margin) expanded by 35 basis points YoY on the back of a sharp expansion in the credit/deposit ratio and a favorable change in asset mix during Q1FY23. 

Nirmal Bang, a domestic brokerage firm, believes that increasing the share of unsecured loans, coupled with some bit of room in terms of C/D ratio expansion, will drive NIMs higher. It maintained a Buy rating with a target price of Rs 2,117 per share, which implies a nearly 16 per cent surge in the stock. 

While JM Financial, another brokerage firm, believes success on deposit momentum with continued strong risk-adjusted margins will drive Kotak’s outperformance incrementally and sustain its premium valuations. Succession clarity remains a key overhang, it added. 

The brokerage maintained a BUY rating with a target price on Rs 2,000 per share (valuing the bank at 2.8x FY24E BVPS), translating to nearly 10 per cent upside in the stock. 

Kotak Mahindra Bank’s share price has grown by around 2x over the past five years, ICICI Direct Research said, adding that the pedalling growth along with diversified asset mix with focus on risk adjusted margin to aid earnings and keep asset quality steady. 

The brokerage maintained a Buy rating on the stock with target price of Rs 2200 per share, implying almost 21 per cent upside in the stock. It values standalone bank at around 3.75x FY24E ABV and subsidiaries at around Rs 488 post holding company discount. 

Kotak Mahindra Bank delivered an in line Q1FY23, with healthy loan growth, steady NII, and lower provisions offsetting treasury losses, Motilal Oswal said, adding that NIM has inched up further, and the outlook remains buoyant, given the improving asset mix and higher mix of floating loans. 

Asset quality remains robust, with a further decline in GNPA/NNPA, while the restructured book remains under control ~0.39% of loans, the brokerage said, maintaining a Neutral stance with a target price of Rs 2,000 (3x FY24E ABV and Rs 588 for its subsidiaries).