Add Kotak Mahindra Bank for the Target 430 by Emkay Global Financial Services Ltd
Kotak Bank reported a strong 8% earnings beat in 1Q, with PAT at Rs 41bn (2.1% ROA), largely led by higher other income and lower provisions. Credit growth moderated to 15.2% after sustaining 16% yoy growth over the last three quarters, largely aided by corporate, SME and credit substitutes. Retail growth remained steady, while unsecured loans like retail microcredit and overall PL reported double-digit growth. Deposit growth moderated to 11.7% yoy (vs ~15% over the past four quarters) on softer CASA accretion, resulting in a 294bps decline in CASA ratio to ~40%. Slippages increased to 1.2% of loans due to seasonal trends in CV and tractor segments, while the bank remained cautious on unsecured business loans amid SME-related challenges. The ECL impact remains manageable at ~2% of net worth, with an estimated 12–15bps rise in ongoing credit costs. The management expects loan growth to stay above system levels over the medium term, supported by organic and inorganic opportunities. The new MD and CEO appointment remains a key monitorable. We largely maintain our estimates and expect the bank to deliver a healthy 2% ROA over FY27-29E, led by better growth, operating leverage, and lower credit costs. We retain our ADD rating and value the standalone bank at 1.6x Jun-28E ABV and subs at Rs149/share, leading to a TP of Rs430.
Business growth moderates; NIM remains stable
KMB loan growth moderates to 15.2% yoy/3.3% qoq, driven by corporate, SME segments, and credit substitutes. Retail microcredit grew 10% yoy/5% qoq, while PL/BL/CDs grew 5% yoy, impacted by the run-down of the acquired StanC portfolio. The management stayed cautious on unsecured business loans amid SME-related challenges but expect overall PL growth to improve. Deposit growth also moderated to 11.7% yoy/flat qoq on lower CASA accretion, resulting in a 294bps decline in CASA ratio to 40.3%. NIM continues to remain stable at 4.53% (adjusting for the 4Q day-count anomaly). Going forward, the management expects loan growth to exceed system levels over the medium term through a mix of organic and inorganic opportunities.
Stable GNPA despite higher slippages; ECL impact to be negligible
Gross slippages increased to Rs13.2bn/1.2% of loans, primarily due to the seasonal trends in CV and tractor segments. However, better recoveries and write-offs led to a stable GNPA ratio of 1.2%. NNPA stayed sticky at 0.3%, and the bank steadily raised its specific PCR to a healthy 79%. The management indicated the one-time ECL impact is expected to be ~2% of net worth, with an ongoing credit cost impact of ~12–15bps.
We maintain ADD on Kotak Bank
We largely maintain our estimates and expect the bank to deliver a healthy 2% ROA over FY27-29E, led by better growth, operating leverage, and lower credit costs. We retain our ADD rating and value the standalone bank at 1.6x Jun-28E ABV and subs at Rs149/share, leading to a TP of Rs430. However, the new MD and CEO appointment remains a key monitorable
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