Buy Kotak Mahindra Bank Ltd for the Target Rs. 2,500 by Motilal Oswal Financial Services Ltd
In-line quarter; asset quality stress eases out
NIM moderates 11bp QoQ
* Kotak Mahindra Bank (KMB) reported a standalone 2QFY26 PAT of ~INR32.5b (in-line with MOFSLe). Consol PAT stood at INR44.7b (down 11% YoY/flat QoQ).
* NII grew 4.1% YoY/0.7% QoQ to INR73.1b (in-line). NIMs contracted 11bp QoQ to 4.54% (vs our est of 4.51%).
* Advances growth stood strong at 15.8% YoY/4% QoQ to INR4.63t, led by robust growth in BB, SME, HL, and corporate advances. Deposits also witnessed healthy growth at 14.6% YoY/3.1% QoQ, led by faster growth in CASA deposits at 6.7% QoQ (11.2% YoY). CASA ratio improved to 42.3%
* Slippages declined 13% YoY/ 10% QoQ to INR16.3b (INR18.1b in 1QFY26 and INR14.9b in 4QFY25). The bank indicated a decline in credit costs across MFI, PL, and CC, while remaining cautious about stress in retail CV. GNPA ratio declined 9bp QoQ to 1.39%, while NNPA declined 2bp QoQ to 0.32%.
* We maintain our earnings and estimate an RoA/RoE of 2%/ 12.7% by FY27. Reiterate BUY with a revised TP of INR2,500 (2.5x FY27E ABV).
Slippages decline QoQ; NIMs to see a rebound in 2H
* KMB reported a standalone PAT of INR32.5b (in-line; down 2.7% YoY) as lower other income was offset by lower opex and provisions. Consol. PAT stood at INR44.7b (down 11% YoY/ flat QoQ).
* NII grew 4.1% YoY/ 0.7% QoQ to INR73.1b (in-line). NIMs contracted 11bp QoQ to 4.54% amid a decline in yields and lower reversal in interest from slippages, while CoF declined 31bp QoQ.
* Other income declined 3.5% YoY/ 15.9% QoQ (14% lower than MOFSLe), driven by treasury loss in 2QFY26.
* Opex declined 3% QoQ to INR46.3b. C/I ratio increased 60bp QoQ to 46.8%. PPoP grew 3.3% YoY (down 5.3% QoQ) to INR52.7b (in-line).
* Loan growth stood robust at 15.8% YoY/4% QoQ to INR4.63t, driven by a healthy pickup in BB (up 19.6%YoY/7.5% QoQ), SME (up 15.6% YoY/ 7% QoQ), HL & LAP (18.1% YoY/ 4.8% QoQ), and corporate banking (17.6% YoY/ 6.2% QoQ).
* Deposits growth was healthy at 14.6% YoY/3.1% QoQ. CASA deposits grew 11.2% YoY/ 6.7% QoQ, led by a 10% QoQ growth in CA deposits. CASA ratio improved to 42.3% (up 140bp QoQ). TD witnessed a slowdown in growth at 17.2% YoY/0.6% QoQ.
* Fresh slippages declined to INR16.3b (down 13% YoY and 10% QoQ), driven by declining stress in MFI, CC, and PL. GNPA ratio declined 9bp QoQ to 1.39%, and NNPA ratio declined 2bp QoQ to 0.32%. PCR stood flat at 77%. SMA-2 loans stood at INR3.9b/8bp of loans. CAR/CET-1 ratio stood at 20.9%/22.1%.
* Performance of subsidiaries: Kotak Prime’s net earnings declined 9% YoY/ 10% QoQ, while Kotak Life reported an 86% YoY/85% QoQ decline in PAT to INR0.5b. Kotak Securities’ reported PAT declined 22% YoY/26% QoQ to INR3.5b, while Kotak AMC reported a 21% QoQ decline in PAT to INR2.6b.
Highlights from the management commentary
* NIMs are expected to expand over the next two quarters, with a higher exit rate in 4Q, contingent on macro trends.
* Opex growth remained below expectations, supported by a decline in payroll expenses.
* Credit cost for credit cards is expected to decline gradually, while MFI has shown improvement and PL has witnessed a significant reduction in credit cost.
* The retail CV business is likely to witness continued stress, and credit cost is likely to remain elevated in the near term.
Valuation and view: Reiterate BUY with a revised TP of INR2,500
KMB reported an in-line quarter, with NII, PPoP, and PAT being largely in line, while lower other income (due to treasury loss) was offset by lower opex as well as lower provisions. Slippages declined QoQ, while PCR stood largely flat at 77%. NIMs were largely in-line and are expected to witness a rebound amid deposits repricing and benefit from the CRR cut. Unsecured book continued to decline but is expected to rebound as the lending environment improves, aiding both growth and the margin trajectory. Overall loan growth is guided at 1.5-2x nominal GDP, driven by strong momentum in retail and unsecured lending. Deposit growth continues to remain robust with healthy traction in CASA deposits. CASA ratio improved in 2QFY26. We maintain our earnings and estimate RoA/RoE at 2%/ 12.7% by FY27. Reiterate BUY with a revised TP of INR2,500 (2.5x FY27E ABV).
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
