Kotak Mahindra Bank disappoints in Q1; analysts ‘neutral’ on stock

Shares of Kotak Mahindra Bank gained modestly in early trade on Tuesday, although most analysts were “disappointed” by the company’s Q1 financial performance. The stock is currently trading at ₹1,336, up about 1 per cent over the previous day's close of on the BSE.

Most analysts felt the first-quarter performance fell below expectations, but remained cautiously optimistic about the stock over the long term.

For the quarter ended June 30, the bank reported a standalone net profit of ₹1,244.45 crore, against ₹1,360.20 crore a year ago. Total income fell 3.3 per cent to ₹7,685.40 crore in the first quarter of the fiscal, against ₹7,944.61 crore a year ago.

Foreign brokerage CLSA has downgraded the stock to ‘Outperform’ from ‘Buy’ with a price target of ₹1,400 a share. While the growth-stability trade-off continues, the bank is delivering on PPOP growth in spite of a loan book contraction, it said.

Brokerage Nirmal Bang, which remained neutral, said that upfronting stress recognition, instead of pushing into moratorium, augurs well for the bank. However, credit growth disappoints as it dips into negative zone, it added.

Motilal Oswal, too, remained neutral on Kotak Mahindra Bank, as it reported steady progress in building a strong liability franchise with CASA ratio improving further to approximately 57 per cent. However, loan growth has reported a sharp deceleration as the bank remains cautious in a weak macro environment, which was further aggravated by Covid-19, it noted. It has set a target price of ₹1,300.

Like its peers, Kotak Mahindra Bank made further Covid provisions of ₹670 crore (cumulative buffer now at approximately 60 bps of advances), said ICICI Securities, and added: cautiously weighing risk-reward, it is going slow on growth across most segments. However, I-Sec maintained its buy stance, noting that its “stability deserves premium”.

Emkak Global, which retained its ‘Hold’ on Kotak Mahindra Bank, with a price target of ₹1,360, said it has recently raised ₹7,400 crore to shore up its tier I capital to 21 per cent in view of the asset quality storm and potential growth opportunities once the storm subsides. However, this will further depress the bank’s RoE to 10-11 per cent over FY21-23E from 13 per cent in FY20.

However, Elara Capital raised the price target to ₹1,450 despite slower-than-sector loan growth. “We recommend Accumulate given KMB’s conservative approach to lending, strengthening of the Bank’s deposit franchise and a strong capital buffer,” it added.

Uday Kotak’s clear message was that the Bank will not shy away from showing more NPLs and credit costs, it observed.

While YES Securities flagged lower growth estimates, it said that earnings would still get an upgrade from likely large treasury gains and resilient NII growth. “FY21 credit cost will be high, but FY22 should be much lower,” said YES Securities, setting a price target of ₹1,435.