While credit growth is likely to continue for Kotak Mahindra Bank Ltd., raising liabilities due to a high interest-rate environment remains a key factor, analysts said after the private lender’s second-quarter results.
The higher share of floating-rate loans will help drive net interest margins.
The bank reported a net profit of Rs 2,580 crore in the September quarter. That compares with the Rs 2,429.6 crore estimate by analysts polled by Bloomberg. Net interest income rose 26.8% year-on-year.
The bank witnessed strong demand for credit cards, vehicle loans, and home loans over the quarter and also improved its net interest margin by 25 basis points sequentially. With slippages moderated and asset quality remaining robust, the lender is well-positioned for the credit cycle, but raising deposits at effective costs is a factor that could play a significant role going forward, according to analysts.
Kotak Mahindra Bank’s gross non-performing asset ratio fell by 16 basis points sequentially to 2.08%. The net NPA ratio improved to 0.55% as on Sept. 30, compared to 0.62% as of June 30.
Here’s what analysts expect from Kotak Mahindra Bank going forward:
Axis Capital
Healthy credit demand and benign asset quality environment offer robust loan growth opportunity.
A higher share of floating rate loans can help drive net interest margins higher.
Low credit costs and high net interest margins can drive earnings higher.
Expect bank to deliver a net profit CAGR of 21% over the financial year 2022 to 2025
Upgrade to ‘buy’ with a target price of Rs 2,300 apiece.
Motilal Oswal
Outlook remains buoyant due to improvement in asset mix and higher share of floating loans.
Expect Kotak Mahindra Bank to deliver 16% earnings CAGR over the financial year 2022 to 2024.
Strong liability franchise will improve the bank’s competitive position and aid asset growth.
Expect the bank’s asset quality ratio to remain broadly stable and estimate credit cost at 25-45 basis points over the financial year 2022 to 2024
Raise target price to Rs 2,040 from Rs 1,906 apiece.
Nirmal Bang Institutional Equities
Net interest margins likely to normalise going forward due to the pressure from higher cost of funds.
Cost of deposits likely to increase at a faster pace going forward.
Management’s focus on building the unsecured book likely to be a margin accretive.
Maintain a ‘buy’ rating with a target price of Rs 2,289 apiece.
Systematic Institutional Equities
A high-margin income line is likely to have longevity in the second half of FY23E and FY24E.
Credit cost could gradually rise but it would remain below the last three years (FY20 – 22) average of around 70bps.
The bank could be opportunistically using a higher margin in building fresh investments in technology infrastructure.
Maintain a ‘hold’ rating on the stock with a revised target price of Rs 2,020, up from Rs 1,864 apiece.
