Kotak Bank Q3 Preview: Double-digit profit growth likely; margin pressure risks loom

During the October-December period, shares of Kotak Mahindra Bank declined 3.5 percent

Kotak Mahindra Bank's net profit is likely to grow in double digits or 12 percent year-on-year (YoY) in the third quarter of FY25 (Q3FY25), while net interest income is set to rise 9 percent YoY, pegged analysts. The private sector lender will announce Q3FY25 results on January 18, 2025.

According to Moneycontrol's poll of 5 brokerages, Kotak’s Q3FY25 profit is estimated at Rs 3,368 crore, up from Rs 3,005 crore in the same period last year. NII is expected to reach Rs 7,186 crore, compared to Rs 6,554 crore in Q3FY24.

Estimates of analysts polled by Moneycontrol are shown to be in a narrow range, meaning any positive or negative surprises may elicit a sharp reaction in the stock price. Among the brokerages polled, YES Securities rolled out the most bullish projections while Elara Securities forecasted the slowest growth for Axis Bank.

What factors are driving the earnings?

Moderation in margins: Analysts at Emkay Global predict a 34 basis point YoY contraction in net interest margins (NIMs) to 5 percent in Q3FY25, down from 5.2 percent a year ago. This moderation in margins is expected to keep Kotak’s core operating profit under check.

Deteriorating asset quality: Growing stress in the unsecured and microfinance (MFI) loan book could put additional pressure on Kotak’s performance. Emkay Global forecasts the gross non-performing asset (GNPA) ratio to edge up to 1.6 percent in Q3FY25, compared to 1.5 percent in Q2FY25.

What to look out for in the quarterly show?

Investors will be closely monitoring management's commentary on NIMs, the growth outlook for the unsecured loan book, and progress on resolving regulatory issues with the Reserve Bank of India (RBI). In April 2024, the RBI imposed restrictions on Kotak, halting the onboarding of new digital and mobile customers and limiting its credit card business due to IT infrastructure shortcomings.

During the October-December period, shares of Kotak Mahindra Bank declined 3.5 percent, as against 4 percent drop in the benchmark Nifty 50 index.