Buy Kotak Mahindra Bank; target of Rs 2340: LKP Research

LKP Research is bullish on Kotak Mahindra Bank has recommended buy rating on the stock with a target price of Rs 2340 in its research report dated July 24, 2023.

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July 24, 2023 / 13:33 IST

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LKP Research's research report on Kotak Mahindra Bank

Kotak Mahindra Bank (KMB) reported strong 1QFY24 results and the key pointers are: a) Strong NII (up 33% YoY and 2% QoQ) and seasonally higher provisions, b) GNPA/NNPA ratio stable at 1.77%/0.44%, c) restructured pool inched down to ₹6.1bn (19bps of advances) v/s ₹7.2bn in the previous quarter, d) credit off-take strong with growth of 17.3% YoY and 2.7% sequentially, e) covid provision held at ₹3.4bn as of 4QFY23, provision write-back worth ₹50mn, f) the total contingent provisioning (covid + Standard + Specific) stood 0.6% of net advances, h) Total PCR (including covid, general and specific provision) stood ~110% of GNPL amount, g) Headline NIM inched down 18bps QoQ to 5.57%. Moreover, stable Opex (C/I at 44.5%) led to superior ROA of ~2.8%. However, employee attrition is higher than peers and has a relatively weak liability franchise (v/s peers: HDFCB and ICICIB) that will be tested in FY24E as deposit competition is intensifying. Nevertheless, asset quality provides comfort for lower credit cost. Hence, the peak ROA (~3% in 4QFY23) likely to settle at the historical range of 2.2 % - 2.4%. We recommend BUY factoring a best in class ROA of more than 2.5%.

Outlook

We expect KMB’s loan book to grow at CAGR of ~18% over FY23-25E. At CMP of ₹1971, the stock is available at 3.7(x) standalone FY25E Adj. BVPS of ₹539. Valuing the standalone entity with 4.2xFY25E BVPS and subsidiaries valuation at ₹74; we arrive at a target price of ₹2,340. We recommend BUY with a potential upside of ~19%.

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