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Est. Vs. Actual for Q4FY25: NII – MISS; PPOP – MISS; PAT – MISS

Changes in Estimates post Q4FY25

FY26E/FY27E (in %): NII:  -4.3/+0.2; PPOP: -8.8/-0.8; PAT: -8.2/+1.1

Recommendation Rationale

Slower Growth in FY25; Meaningful Acceleration Expected in H2FY26: In FY25, the slower growth can be primarily attributed to the portfolio churn towards retail loans and direct-to-corporate from the opportunistic lower-yielding large and PSU/NBFC lending pursued earlier. Pursuant to its strategy to improve the share of direct-to-corporate loans, the bank has seen a ~Rs 1,300 Cr churn from the NBFC advances to the direct-to-corporate segment in FY25. Furthermore, KTKBANK has aligned its processes and beefed up sales and leadership teams in the retail and MSME segment as it readies to push the growth pedal going into FY26. The bank is eyeing to exit FY26 with credit growth delivery of ~14-15%, with a loan book of ~Rs 90,000 Cr. The management remains confident that the new product launches and investments made so far will yield results, enabling KTKBANK to deliver a healthy growth in FY26 and further accelerate the pace of growth going into FY27E. We pencil in credit growth of ~15% CAGR over FY25-27E.

Margin improvement levers present: While the CASA accretion in Q4FY25 was strong, margins remained under pressure with CoF inching-up sharply. However, the bank has revised its deposit rates downwards based on both tenor and deposit value and expects the benefits of the rate revision to reflect in the CoF from Q1FY26 onwards. Apart from the higher CoF, KTKBANK’s NIMs were impacted by the reclassification of penal interest to penal charges (impact of 6bps in FY25) and the impact of the reclassification could be seen for the next couple of quarters. That said, KTKBANK’s margins would find support from (1) Improving mix of better-yielding segments in the portfolio, (2) Expectations of a controlled contraction in yields despite ~70% of the loans are T-bill linked, wherein downward repricing is expected to be shallow vs. repo rate linked loans, (3) Bank’s ability to reprice corporate assets on a quarterly basis, and (4) Scope to accelerate credit growth with a lower LDR. Thus, the management expects margins to improve by 10- 20bps in FY26, with NIMS ranging between 3.2-3.4% .

Sector Outlook: Positive

Company Outlook: With investments made and strengthening processes and teams ripe to yield results, we expect KTKBANK to resume its growth journey, though gradually from FY26E onwards. Focus on granular retail deposits, particularly CASA deposits, remains unabated. We believe KTKBANK has multiple levers in place to protect and improve its margins over the medium term, thereby enabling the bank to improve RoAs. With a majority of the investments already made, Opex growth is expected to remain controlled, driving cost ratios downwards. We expect RoA/RoE to remain at 1.1-1.2%/11-13% over FY25-27E, driven by the aforementioned factors. Growth delivery on guided lines, and sustenance remain key levers for a meaningful re-rating in the stock.

Current Valuation: 0.75x FY27E ABV; Earlier Valuation: 0.75x Sep’26E ABV

Current TP: Rs 270/share; Earlier TP: Rs 255/share

Recommendation: We maintain our BUY recommendation on the stock at inexpensive valuations

Alternative BUY Ideas from our Sector Coverage:

DCB Bank (TP – Rs 160), Federal Bank (TP – Rs 230), City Union Bank (TP – Rs 225)

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