Kotak Mahindra drops 3% post-earnings as brokers cite sluggish loan growth
Kotak Mahindra Bank reported solid year-on-year profit growth and stable asset quality for the first quarter, but a 3% share price drop highlights investor concerns over the pace of its loan expansion.
Kotak Mahindra Bank shares fell more than 3% after the lender released its first-quarter results, a decline that contrasts with its underlying financial metrics. Net interest income rose 9% year-on-year to Rs 7,928 crore, while the bank's net worth grew 14% to Rs 1.4 lakh crore.
The lender's asset quality showed a mixed performance. On an annual basis, net non-performing assets fell 11% to Rs 1,358 crore and fresh slippages dropped 27% to Rs 1,321 crore. The gross NPA ratio stood at 1.18% and the net NPA ratio at 0.27%. However, sequential metrics weakened, with net NPAs increasing 7.5% from the Rs 1,262 crore recorded in the March quarter.
Despite the share price weakness, major brokerages retained their positive recommendations, though their price targets suggest varying expectations for the stock's near-term momentum. Valuations currently sit around 1.3x to 1.4x estimated FY28E book value, a level analysts broadly consider reasonable given the bank's strong liability franchise.
Motilal Oswal reiterated its Buy rating with a target price of Rs 470, implying a 21% upside. The firm pointed to stable net interest margins and controlled credit costs, forecasting that margins will improve as the bank increases its share of unsecured and commercial loans. It also highlighted a meaningful pickup in corporate lending driven by better spreads.
JM Financial took a more cautious stance, maintaining an Add rating but assigning a lower target price of Rs 415, suggesting only a 6.4% upside. The brokerage noted that while the bank benefits from steady asset quality and its acquisition of Deutsche Bank's India consumer banking business, sluggish overall loan growth will likely make profitability improvements a gradual process.
Dolat Capital maintained an Accumulate rating with a Rs 455 target, representing a 17% upside. The firm noted that first-quarter profit was largely in line with expectations, as treasury losses were balanced by lower credit costs and a stable return on assets of 2.1%. However, Dolat cautioned that return on equity is expected to remain below peer levels even as credit costs stay contained.
