Kotak Mahindra Bank's Q1 results evoke mixed brokerage views; stock down 3%

Kotak Mahindra Bank reported a net profit of Rs 6,250 crore for the April-June quarter of fiscal year 2025

Investors booked profits in Kotak Mahindra Bank on July 22, causing its shares to drop 3 percent to Rs 1,763 apiece, after the private lender reported strong Q1FY25 results. Despite this, brokerages offered mixed opinions on the stock, citing uncertainty over the timeline for lifting the Reserve Bank of India's (RBI) digital banking ban, keeping margin and loan growth outlook in check.

Morgan Stanley analysts issued an 'overweight' call for Kotak Mahindra Bank and increased the target price to Rs 2,300 per share from Rs 2,150, indicating a 30 percent upside from current levels. "We observed significant one-time gains during the quarter with strong loan growth and controlled costs as key positives. At a 1.7x price-to-book (PB) ratio for FY26, we believe the risk-reward is attractive for Kotak Mahindra Bank," they stated.

Motilal Oswal analysts reiterated a 'neutral' rating for the stock and set a target price of Rs 1,800, noting the healthy performance despite the RBI ban on its digital sourcing and restriction on new card issuance. They emphasised that the removal of the ban is critical for the bank to achieve sustainable growth and earnings.

Jefferies also assigned a 'hold' rating to Kotak Bank and raised the target price to Rs 1,960 per share from Rs 1,790, attributing this to strong performance in the capital market segments of its subsidiaries.

Conversely, Bernstein gave Kotak Bank a 'market-perform' rating with a target price of Rs 1,750. They highlighted concerns over managing growth and profitability going forward.

"The RBI digital restrictions have slowed unsecured loans and reduced the pace of customer acquisition. The timeline for lifting these restrictions is uncertain. While robust corporate growth boosted overall loan growth, it came at the expense of margins," the brokerage firm commented.

JM Financial also issued a 'hold' rating and a target price of Rs 1,830. Analysts noted that key factors to monitor will be the trajectory of deposit growth, the sustenance of margins, and the ability to manage credit costs.

"Although the stock has largely recovered from the losses due to the RBI embargo, core momentum remains soft (lower NIMs and higher credit costs), making further valuation re-rating unlikely. We lower estimates by 12 percent for FY25 and FY26, factoring in lower NIMs, slightly higher credit costs, and the impact of the RBI embargo," the brokerage firm stated.

Kotak Mahindra Bank reported a net profit of Rs 6,250 crore for the April-June quarter of fiscal year 2025, an 81 percent increase from Rs 3,452 crore in the same quarter last year. This boost included Rs 3,012 crore in profit after tax due to the bank's stake sale in its insurance subsidiary, Kotak General Insurance, to Zurich Insurance Group.

The bank's net interest income was Rs 6,842 crore, up 10 percent from Rs 6,234 crore last year. However, it saw a 20 basis points (bps) sequential drop in its unsecured loan book growth to 11.6 percent from 11.8 percent. The net interest margin (NIM) remained flat quarter-on-quarter at 5.02 percent in Q1FY25 but was down 55 bps year-on-year from 5.57 percent in Q1FY24.