Buy Kotak Mahindra Bank; target of Rs 2400: Motilal Oswal

Motilal Oswal's research report on Kotak Mahindra Bank

Kotak Mahindra Bank (KMB) has aligned its loan trajectory with a disciplined target of 1.5-2.0x, while consciously improving business granularity by focusing on the retail and SME segments. SA repricing and ActivMoney sweep are expected to ease funding costs and limit margin contraction following the sharp decline in 1Q. We estimate NII to clock a 19% CAGR over FY26-28, with NIMs stabilizing and beginning to recover from 3QFY26 onwards. We estimate provisioning expenses to subside compared to 1Q and improve further in 2HFY26. Full-year credit costs are likely to sustain at ~70bp (93bp in 1QFY26). KMB’s leadership continues to strengthen digital capabilities, enhance segmentation, and maintain cost discipline. With 150-200 branches being added annually without increasing headcount, the bank remains focused on strengthening its retail business, diversifying fees, and sustaining RoA at above 2% during FY26-28E.

Outlook

We have upgraded KMB after being Neutral on the stock for almost five years in Jan’25 at INR1,759. While we estimate current year performance to remain modest we nevertheless estimate the bank to deliver 20% earnings cagr over FY26-28E. This in context to reasonable valuations will aid stock performance. We thus estimate KMB to deliver robust return ratios, with RoA/RoE at 2%/12.8% by FY27E. Retain BUY with TP of INR2,400 (2.4x FY27E).

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