ICICI Securities Upgrades Kotak Mahindra Bank to Buy, Sets Target Price at Rs 480
Kotak Mahindra Bank Reports Strong Q4FY26 Results, But Guidance Falls Short
Kotak Mahindra Bank (KMB) has reported a strong fourth quarter (Q4) fiscal year 2026 (FY26) result, marked by a notable increase in net interest margin (NIM) and historically low slippages/credit costs. However, the guidance of a year-over-year (YoY) dip in FY27 NIM was underwhelming.
Key Highlights of Q4FY26 Results
The bank's profit after tax (PAT) grew 13% YoY to INR 40.3 billion, driven by a 7-8% YoY growth in net interest income (NII), profit per outstanding share (PPOP), and improved credit costs. The return on assets (RoA) stood at 2.1% for the quarter and 1.97% for the fiscal year. The common equity tier 1 (CET 1) capital ratio was strong at 22.1%.
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Credit Growth and Asset Quality Trends
Unsecured retail loans have started to grow quarter-over-quarter (QoQ), and we expect its share to have an upward bias incrementally. Fixed-rate savings account (SA) balances grew strongly at 18% YoY, while the drag on floating rates seems to be receding. Kotak Mahindra Bank sounded confident about sustaining healthy asset quality trends, barring quarterly variations.
Guidance and Outlook
However, the bank guided for a YoY dip in FY27 NIM due to upward pressure on term deposits. The estimated common equity tier 1 (ECL) transition impact is guided at less than 2% of net worth. We maintain our BUY recommendation with a target price (TP) cut to INR 480.
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Estimates and Recommendations
We estimate a compound annual growth rate (CAGR) of approximately 16% in loans and a return on assets (RoA) of around 2% for FY26-28E. The target price has been cut to INR 480 (vs. INR 530 earlier), based on approximately 2x FY28E core banking (vs. ~2.3x earlier). The risks associated with higher-than-expected stress remain a concern.
Comparison of Key Ratios and Growth Rates
| Metric | Q4FY26 | Q4FY25 | YoY Growth |
|---|---|---|---|
| PAT (INR billion) | 40.3 | 35.7 | 13% |
| NII (INR billion) | 21.9 | 20.4 | 7-8% |
| PPOP (INR billion) | 17.2 | 16.1 | 7-8% |
| RoA (%) | 2.1 | 2.0 | 5% |
| CET 1 (%) | 22.1 | 21.5 | 2.5% |
| Loan CAGR (%) | 16% | - | - |
Note: The estimates and recommendations are subject to change based on market conditions and other factors.
Investor Takeaway
Investors should maintain a BUY rating for Kotak Mahindra Bank with a target price of Rs 480.
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