Buy Kotak Mahindra Bank Ltd For Target Rs. 480 by Prabhudas Liladhar Capital Ltd
Levers in place for growth; execution is key
KMB saw a steady quarter as NII and loan growth were largely in-line. Adjusted for day count, reported NIM at 4.5% was stable QoQ. Miss on fees was offset by lower opex and provisions leading to core PAT meeting PLe. There are upside risks to FY27/28E NIM as unsecured growth could pick-up while increasing repo rate cycle would benefit KMB due to higher EBLR share. Bank aims to deliver above industry credit growth in secured/unsecured; avg. LCR at 134% may provide additional balance sheet cushion. With continued investments in technology, better operating efficiency may sustain. We maintain multiple at 2.0x and keep TP at INR 480. Retain ‘BUY’.
Steady quarter. Core PAT in-line; miss on fee offset by better opex/asset quality:
NII was largely in-line at INR 79.3bn with loan growth (15.2% YoY) and NIM (calc.) at 4.47% meeting expectations; reported NIM adjusted for day count convention was flat QoQ at 4.53%. Deposit accretion was in-line at 11.7% YoY (PLe 11.7%). LDR increased to 89.4% (86.6% in 4Q’26). Other income was beat at INR 33.4bn (PLe INR 31.8bn) due to dividend and forex gains; fee at INR 25bn was 6.9% miss. Opex at INR 51.4bn was 2.4% below PLe due to lower other opex led by decrease in marketing spend. Core PPoP at INR 52.9bn was 2.3% below PLe; PPoP was INR 61.3bn. Asset quality improved; GNPA was a bit lower at 1.18% (PLe 1.21%) due to lesser slippages at INR 13.2bn (PLe INR 16.8bn) leading to lower provisions. Core PAT was a 1% beat at INR 34.9bn while PAT was INR 41.2bn.
Loan growth was led by corporate/SME:
Credit growth was in-line at 3.3% QoQ mainly led by corporate (+4.8%) while SME grew by (2.6%) and retail growth was muted at 0.6%. Corporate growth was driven by granular WC lending, while maintaining prudent risk selection in large corporates. Mid-market business continued its momentum with strong customer acquisitions. SME growth was driven by healthy WC demand, new customer acquisitions and deeper wallet share with existing customers; ECLGS of INR 30bn was disbursed till Jun’26 end. KMB aims to deliver above industry credit growth in secured & unsecured segments. We see loan/deposit CAGR of 15.5/14.6% over FY26-28E
Slippages in vehicle finance; ECL impact of 12-15bps on sustainable basis:
Slippages were higher QoQ driven by delinquencies in CV/tractor finance portfolio; unsecured segment continues to witness improvement in asset quality. One-time ECL impact is expected at 1.5-2.0% of equity while sustainable credit costs may increase by 12-15bps. We are factoring provisions of 61/65bps in FY27/28E
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