LKP Research is bullish on Kotak Mahindra Bank has recommended buy rating on the stock with a target price of Rs 1680 in its research report dated October 27, 2020.
LKP Research's research report on Kotak Mahindra Bank
Kotak Mahindra Bank (KMB) reported strong 2QFY20 results with the key pointers being: a) significant improvement in collection efficiencies on month-on-month basis, b) gross slippage came down at ₹2.64bn v/s ₹7.96bn in 1QFY21, as NPA recognition stood still c) sequential credit growth stood positive at 0.4% YoY; with conservative approach of risk aversion, d) sequentially lower cost to income ratio (38.5% v/s 41.7% in the previous quarter) driven by higher profitability and lower opex., e) Decline in provisioning expenses (₹3.6bn v/s 9.6bn in the previous quarter) led to PAT growth of 75.5% sequentially; the bank has made total COVID provision of ₹12.8bn as of 2QFY21, f) the total contingent provisioning (COVID + Standard + Specific) stood 1.13% of net advances, g) Total PCR (including COVID, general and specific provision) stood above the GNPL amount, g) Headline NIM inched up 18bps QoQ to 4.58% on the back of lower cost of deposits. We believe the bank should grow conservatively with marginal blip in asset quality. With normalization of credit cost, we estimate a ROA/ROE of 1.8%/12.4% in FY22E. Thus, we recommend BUY.
We expect KMB’s loan book to grow at CAGR of ~7.7% over FY20-23E. The bank is available at 4.5(x) standalone FY22E Adj. BVPS of ₹309. Valuing the standalone entity with 4.5xFY22E BVPS of ₹309 and SOTP valuation for subsidiaries and JVs (₹289); we arrive at a target price of ₹1,680. We recommend BUY rating with a potential upside of 19%.
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