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Kotak Bank seen as quality bet to play credit growth recovery in economy

Kotak Mahindra Bank reported a better-than-expected net profit of Rs 2,131 crore for the quarter-ended December 2021 and a net interest margin of 4.6 percent

Mumbai / January 31, 2022 / 11:51 AM IST
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Brokerages were upbeat on Kotak Mahindra Bank’s prospects after the lender posted strong December quarter earnings.

Kotak Mahindra Bank reported a better-than-expected net profit of Rs 2,131 crore for the quarter-ended December 2021 and a net interest margin of 4.6 percent. What impressed analysts the most was the 18 percent year-on-year and 8 percent sequential growth in loans the bank reported.

“Kotak Mahindra Bank is upbeat on growth not only catching up, but now outpacing peers with broad-based and robust growth in advances,” said ICICI Securities, which upgraded the stock to ‘buy’ from ‘add’ and raised its price target to Rs. 2,451.

CLSA India concurred. It too upgraded shares of the private sector lender to ‘buy’ suggesting that December quarter earnings have reinforced its view that the bank can grow faster than its peers.

Investors were seemingly aligned to this outlook. Shares of Kotak Mahindra Bank rose nearly 2 percent in the early minutes of the session before paring most of those gains to trade 0.2 percent higher at Rs 1,901.7 on the National Stock Exchange.


Analysts were also impressed by the pristine quality of the lender’s loan book. Gross non-performing loans ratio of the lender improved to 2.71 percent in the December quarter from 3.19 percent in the previous quarter.

“Its asset quality performance remained robust. The restructured book remained under control around 0.54% of loans,” Motilal Oswal Financial Services wrote in a note.

That said, some brokerages were of the view that the lender’s valuations were still rich even although it has undergone a correction recently. Shares of the private sector lender have fallen over 6 percent in the past three months, underperforming the Nifty Bank index.

“While the stock has time-corrected, it still remains expensive for the RoE (return on equity) it delivers,” said Nomura Financial Advisory and Securities India in a note. The firm cut its price target for the stock by 2 percent to Rs. 2,060 and retained a ‘neutral’ rating.

Credit Suisse India also expressed the same concern; the bank is likely to post a return on equity of around 13 percent, which makes the stock’s current valuation expensive, the securities firm said.

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Chiranjivi Chakraborty
first published: Jan 31, 2022 11:50 am
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