Analyst Tracker: Kotak Mahindra Bank stock gets most brokerage rating upgrades in May

Kotak Bank has said that the RBI's measures would likely impact profit before tax by about 2-3 percent.

Kotak Mahindra Bank led among the Nifty 50 stocks with the highest number of brokerage upgrades in May, due to its attractive valuations and a decrease in gross non-performing assets (NPAs).

According to Moneycontrol's Analyst Call Tracker, 'buy' recommendations for Kotak Mahindra Bank increased to 28 in May, up from 23 in April. 'Hold' calls decreased to 10 from 14, and 'sell' recommendations dropped to five from seven the previous month.

JP Morgan upgraded its rating to 'overweight,' citing the bank's "very cheap" valuation. "Kotak Mahindra Bank has reasonable flexibility on operational expenses to mitigate any margin pressures. After consistent EPS upgrades over the last year and following the de-rating, we think valuations are inexpensive at 10x FY26 earnings," the brokerage stated.

JP Morgan also projected that Kotak Mahindra Bank's balance sheet would grow by 16 percent annually over the next two years, with earnings expected to increase at a compound annual growth rate (CAGR) of 16-17 percent during the same period.

Ajit Kumar Kabi, a research analyst at LKP Securities, noted a significant reduction in the bank's gross NPA ratio due to slower slippages and improved recoveries. The gross NPA stood at 1.39 percent, down from 1.78 percent a year earlier, while the net NPA ratio remained stable at 0.34 percent, compared to 0.37 percent at the end of FY23.

RBI action noted, but impact considered limited

The Reserve Bank of India (RBI) imposed restrictions on Kotak Mahindra Bank on April 24, prohibiting new customer acquisitions through its online and mobile banking channels and halting the issuance of new credit cards, citing significant compliance failures in its technology platforms.

During its Q4 FY24 results conference call, the bank stated that the RBI's measures would likely impact profit before tax by about 2-3 percent, equating to a financial effect in the range of Rs 300-450 crores on an annualised basis. The bank also plans to enhance its relationships with existing customers to mitigate the impact on its operations.

Although the restrictions could affect the growth of new credit cards and customer acquisition, the bank intends to increase investment in technology to resolve the issues, according to JP Morgan.

BOB Capital maintained a 'buy' rating on the stock, noting in a May 7 report, "The recent regulatory restrictions on new credit card issuance and digital onboarding of new clients may slow growth momentum and margins, and the overall return ratio. However, the recent price correction has already factored in most of the negatives."

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