Kotak Mahindra Bank Rated 'Buy' by Prabhudas Lilladher, Target Price Rs 480
Kotak Mahindra Bank Sees Improved Quarter Despite Asset Quality Pressure
Kotak Mahindra Bank (KMB) has reported a better-than-expected quarter, driven by improved fees, operating expenses, and asset quality. The bank's core profit after tax (PAT) beat estimates by 8.8%, thanks to a strategic shift in its business model.
The bank's decision to increase its unsecured mix of assets has led to a slower growth pace, as management has indicated that secured growth will not be sacrificed. As a result, the reported net interest margin (NIM) is expected to remain flat in fiscal year 2027 (FY27E) compared to FY26 levels of 4.6%. However, fee growth is expected to pick up in FY27, which may result in an increase in operating expenses.
Key Statistics
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| Financial Metric | FY26E | FY27E | FY28E |
|---|---|---|---|
| Net Interest Margin (NIM) | 4.6% | 4.6% | 4.4% |
| Fee Growth | 6.5% | 10.0% | 12.0% |
The bank's asset quality pressure is expected to have a negative impact on profit after tax (PAT) in FY27/28E. However, this will be more than offset by lower operating expenses. As a result, the multiple on the bank's core assets-based value (ABV) has been cut to 2.0x, with a roll-forward to FY28 core ABV, and the target price has been trimmed to INR 480 from INR 500. The research firm retains a 'BUY' rating for Kotak Mahindra Bank.
Investor Takeaway
Investors should consider buying Kotak Mahindra Bank with a target price of Rs 480.
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