Buy Kotak Mahindra Bank Ltd For Target Rs.2,575 By Axis Securities Ltd
Recommendation Rationale
* Unsecured Book Stress Ease; Credit Costs to Taper Over H2: The stress in the unsecured portfolio has stabilised and is expected to gradually taper, driving credit costs lower. Credit costs in the MFI portfolio peaked in Q1 and declined in Q2. The management has also indicated that credit costs in the credit card and PL portfolios will improve in H2 versus H1. However, the stress in the retail CV segment remains elevated, and the bank expects higher credit costs in this segment to persist for another couple of quarters. Asset quality metrics in the secured segments (ex-retail CV) and corporate book continue to remain strong. Overall, credit costs are expected to continue their downward trajectory in H2.
* Meaningful NIM Improvement to be Primarily Driven by Loan Mix Shift: KMB’s margins contracted by 11bps QoQ in Q2, mainly due to the full impact of the 50bps repo rate cut taken in Jun’25 and a portfolio mix shift toward retail assets. However, the extent of margin compression was significantly lower sequentially, supported by a sharp improvement in the CoF (down 31bps QoQ), driven by the full impact of the SA rate cut and TD repricing, which offset yield compression. Barring any further rate cuts, NIMs appear to have bottomed out in Q2 and are expected to resume their upward trajectory from H2 onwards, aided by TD repricing and CRR cut. The full benefit of the TD rate cut should be visible by Q4/Q1FY27. Thereafter, NIM improvement will be supported by an increasing mix of higher-yielding unsecured segments.
* Growth Remains Healthy; Readying to Press the Unsecured Growth Pedal: KMB remains committed to expanding its unsecured portfolio without compromising on asset quality. The credit card segment continues to be a key growth driver as the bank aims to scale the unsecured portfolio to ~15% over the medium term. KMB has revamped its credit card offerings and remains optimistic about growth resuming in the coming quarters. While the focus remains on ramping up growth in the unsecured book, KMB will continue to pursue steady growth in the secured retail and corporate portfolios. We expect KMB’s overall credit growth to remain robust at ~17% CAGR over FY26–28E, supported by a gradual improvement in the unsecured portfolio mix
For More Axis Securities Disclaimer https://simplehai.axisdirect.in/disclaimer-home
SEBI Registration number is INZ000161633
