Buy Kotak Mahindra Bank for the Target Rs 470 by Motilal Oswal Financial Services Ltd
Steady quarter; other income, lower provisions drive earnings beat RoA outlook robust at 2.0-2.1%
* Kotak Mahindra Bank (KMB) posted a standalone 1QFY27 PAT of INR41.2b (5% beat; up 26% YoY/2% QoQ), aided by high other income and lower provisions. Consolidated PAT stood at INR54.8b (up 23% YoY/5% QoQ).
* NII grew 9% YoY/1% QoQ to INR79.3b (in line). Its NIM dipped 14bp QoQ to 4.53% (in line) as the gains from the day count benefit reversed.
* Advances growth was steady at 15.2% YoY/3.3% QoQ to INR5.1t, aided by broad-based growth in BB, SME, and corporate advances and some pick-up in the credit card book. Deposits were up 11.7% YoY/flat QoQ, with the CA book declining 13% QoQ. The CASA ratio declined 300bp QoQ to 40.3%.
* Slippages increased to INR13.2b (up 30% QoQ/down 27% YoY). Credit cost normalised to 0.46% with seasonality in the CV and tractor books. The GNPA/ NNPA ratios were largely flat at 1.18%/0.27%.
* We marginally raise our earnings estimates by ~2% for FY27/28 and project an RoA/RoE of 2.05%/12.6% in FY27. Reiterate BUY with a TP of INR470 (premised on 2.0x Mar’28E ABV + SoTP of INR155).
Adjusted NIM flat QoQ; CASA ratio drops to 40.3%
* Standalone PAT stood at INR41.2b (up 25.6% YoY/2.4% QoQ), aided by high other income and lower provisions. Consolidated PAT stood at INR54.8b (up 23% YoY/5% QoQ).
* NII grew 9.2% YoY/0.7% QoQ to INR79.3b (in line). Its NIM dipped 14bp QoQ to 4.53% (in line) as the gains from the day count benefit reversed.
* Other income was up 7.1% QoQ/8.4% YoY (11% beat), aided by dividends from subsidiaries even as there was a treasury loss. Opex rose 7.5% YoY/flat QoQ to INR51.4b (in line). PPoP rose 10% YoY/5% QoQ to INR61.3b (4% beat).
* Loan growth was steady at 15.2% YoY/3.3% QoQ to INR5.1t, aided by growth in SME (2.6% QoQ), corporate (4.8% QoQ), MFI (4.8% QoQ), and credit cards (4% QoQ). However, growth in PL, BL, and CV segments remained subdued, with KMB remaining cautious owing to the impact of macroeconomic stress.
* Deposits were up 11.7% YoY/flat QoQ. CASA deposits were down 6.7% QoQ. As a result, the CASA ratio declined to 40.3% (down 300b QoQ). TD grew 5.3% QoQ/12.7% YoY for the quarter.
* Fresh slippages increased to INR13.2b (up 30% QoQ/down 27% YoY) amid seasonality in CV and tractor finance. The GNPA/NNPA ratios were largely flat at 1.18%/0.27%. PCR declined marginally to 77.8%. SMA-2 loans increased to INR2.5b/5bp of loans. CAR/CET-1 ratios stood at 22.8%/22.4%. Credit costs came in at 0.46% as against 0.39% in 4QFY26 and 0.93% in 1QFY26.
* Performance of subsidiaries: Kotak Prime’s net earnings grew 30% YoY/48% QoQ; Kotak Life’s PAT rose 3% YoY to INR3.4b. For Kotak Securities, reported PAT improved 33% QoQ to INR5.3b. Kotak AMC’s PAT increased 22% YoY to INR4.0b.
Valuation and view: Reiterate BUY with a TP of INR470
KMB reported a steady quarter, marked by controlled slippages and credit costs, along with stable NIMs. KMB’s NIM is expected to inch up with a gradual pickup in unsecured and commercial asset classes. The unsecured portfolio has largely attained stability, and the bank expects credit costs to remain well contained going forward. While overall advances growth remained steady, corporate lending picked up meaningfully, with the bank taking advantage of better spreads and volatility in treasury markets. Management has aimed to exceed system growth through a combination of both organic and inorganic credit expansion. KMB reiterated its guidance of delivering loan growth at ~1.5-2.0x nominal GDP, supported by steady traction in retail and unsecured segments. On the regulatory front, the bank highlighted that the transition to ECL would have a limited impact of less than 2% on net worth, with a marginal uptick in expected credit costs, reinforcing visibility on asset quality. We marginally raise our earnings estimates by ~2% for FY27/28 and project an RoA/RoE of 2.05%/12.6% in FY27. Reiterate BUY with a TP of INR470 (premised on 2.0x Mar’28E ABV + SoTP of INR155).
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