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What should investors do with Kotak Mahindra Bank post Q4 earnings: buy, sell or hold?

Net interest income in Q4 FY21 grew by 8 percent to Rs 3,842.81 crore compared to the year-ago.

May 04, 2021 / 09:32 AM IST
 
 
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Kotak Mahindra Bank share price rose in early trade on May 4 after the company reported its March quarter earnings.

The company posted a 32.8 percent year-on-year (YoY) growth in standalone profit at Rs 1,682.4 crore in the quarter ended March 2021.

Net interest income in Q4 FY21 grew by 8 percent to Rs 3,842.81 crore compared to the year-ago, with moderate 1.8 percent YoY growth in advances at Rs 2.23 lakh crore during the quarter.

However, the net interest margin contracted to 4.39 percent from 4.72 percent.

Also Read - Kotak Mahindra Bank Q4 profit jumps 33% to Rs 1,682.4 crore, provisions remain high

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Here is what brokerages have to say about the stock and company after the March earnings:

HSBC | Rating: Reduce | Target: Rs 1,490

The gross NPAs remained broadly stable on QoQ basis, while loan growth recovered to positive territory.

Pressure was seen on term deposit growth. The strong capital & liquidity buffers are the positives. RoE could remain less than 12% by FY23.

Morgan Stanley | Rating: Equal-weight | Target: Cut to Rs 1,900 from Rs 2,025

The core PPoP growth was at 18% YoY, adjusted for one-time interest income reversals. The company reported steady asset quality and a strong performance by subsidiaries. We expect sustained earnings acceleration.

CLSA | Rating: Underperform | Target: Rs 1,850

The Q4 headline PPoP & PAT missed due to interest on interest reversal. The valuations are not cheap at current levels and we see better risk-reward in ICICI Bank & Axis Bank.

Credit Suisse | Rating: Neutral | Target: Rs 1,680

The growth picked up and credit costs also rose. The capital levels are strong (Tier-1 At 22%). The bank looking to accelerate growth and is open to inorganic opportunities. Rating is neutral as stock trades at 3.7x core P/B, for 13% RoE.

Sharekhan | Rating: Buy | Target: Rs 2,130

We value the bank on a standalone basis at 4.5x its FY2023E book value and its subsidiaries at Rs 490 per share. The bank’s strong operating metrics, prudent and agile leadership team, well-capitalised balance sheet, as well as the quality of its subsidiaries (formidable players in their own segments), provide long-term value to franchises.

Dolat Capital | Rating: Accumulate | Target: Rs 1,900

The company reported in line NII growth of 8% YoY, impacted by high slippages and few one-offs (previous quarter’s interest reversal, compound interest waiver of Rs 1.1 billion).

Operating profits benefitted from higher treasury gains and better fee lines, growing 25% YoY. Sequential loan growth of 4.5% YoY was driven by HL (10% QoQ) and SME (6-7%), CV/CE (9%), and agri loans (9%).

Motilal Oswal | Rating: Neutral | Target: Rs 1,900

The bank reported missed on our expectations, affected by elevated provisions and lower NII. Loan growth is showing signs of a revival, with a higher focus on Home loans. The bank continues to report steady progress in building a strong liability franchise, with the CASA ratio improving to 60% (highest in the industry).

Asset quality ratios stood stable on a sequential basis, while restructuring book stands limited at 0.19% of advances. The bank carries COVID-related provisions of Rs 12.8 billion (0.6% of advances), which provides us comfort, and estimate credit cost at 1% for FY22E (v/s 1.3% in FY21).

ICICI Direct | Rating: Buy | Target: Rs 2,040

The bank's long term focus continues on maintaining risk-adjusted returns. Credit growth momentum has been maintained sequentially, which is a positive.

Recent RBI announcement of limiting MD & CEO term to 15 years may not impact the bank immediately as there is an adequate time of over 2.5 years for a smooth transition. Comfortable provision provides comfort regarding volatility in asset quality and, thus, earnings. Consistent performance over a period of time, healthy return ratios 2% RoA & 13% RoE with strong management are reasons for premium valuations.

LKP | Rating: Buy | Target: Rs 1,900

We expect the bank’s loan book to grow at a CAGR of 10% over FY21-23E. At CMP of Rs 1725, the stock is available at 4.4(x) standalone FY23E Adj. BVPS of Rs 396. Valuing the standalone entity with 4.8xFY23E BVPS; we arrive at a target price of Rs 1900. We recommend a buy rating with a potential upside of 10%.

At 09:21 hrs, Kotak Mahindra Bank was quoting at Rs 1,734.00, up Rs 9.70, or 0.56 percent on the BSE.

The share touched a 52-week high of Rs 2,048.95 and a 52-week low of Rs 1,110 on 16 February 2021 and 18 May 2020, respectively.

Currently, it is trading 15.37 percent below its 52-week high and 56.22 percent above its 52-week low.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: May 4, 2021 09:31 am

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