Reduce Kotak Mahindra Bank: target of Rs 1700: Emkay

Emkay's research report on Kotak Mahindra Bank

Kotak Mahindra Bank (KMB) reported a sharp decline in margins (vs stable for HDFCB), which coupled with higher LLP, led to a 4% miss on core PAT at Rs35bn. However, KMB reported higher PAT of Rs62.5bn, adjusted for net oneoff gain from the stake sale in Kotak General Insurance (KGI) of Rs27.3bn. Despite the embargo on new card issuance, rising unsecured loan stress, and struggle on deposits with CASA shrinking to a low of 43%, the bank accelerated credit growth to 19% YoY. We believe, it needs to calibrate growth a bit and fix its slipping liability profile and asset quality, especially in light of RBI warnings. Bank has gained from new investment guidelines given its traditionally higher AFS book, leading to nearly Rs34bn addition to its NW, but further diluting RoE. Factoring margin pressure and bottoming of low LLP era, we expect KMB’s core RoA/RoE declining from 2.5%/15% in FY24 to 2%-2.3%/12-14% over FY25- 27E.

Outlook

We retain REDUCE with revised TP of Rs1,700/sh (earlier Rs1,625) rolling fwd on 1.8x Jun-26E SA ABV (revised upwards due to AFS reserve/KGI stake sale gains) and subs/Inv value at Rs540/sh.

To read more check this website - Money Control

Credit - Money Control