5 reasons why Jefferies upped Kotak Mahindra Bank's share price target
5 reasons why Jefferies upped Kotak Mahindra Bank’s share price target
Jefferies has upgraded its rating on Kotak Mahindra Bank Ltd to ‘Outperform’ from ‘Neutral’ and suggested a share price target of Rs 2,070, citing compelling valuations, a strong 20 per cent loan growth, solid asset quality, liquidity comfort and healthy pre-provision operating profits.
The foreign brokerage expects Kotak Mahindra Bank to compound balance sheet at 16 per cent annually over the next two years. Even after factoring return on asset (ROA) normalisation, it thinks bank earnings can compound at 16-17 per cent over the next two years with scope for upside driven by better opex control.
“We upgrade Kotak to Overweight following supportive valuations post recent RBI actions. The impact of the same on FY25-26 growth should be minimal and the bank showed in Q4 print that core operating metrics remain strong with headline profit adjusted for one-offs was 8 per cent ahead of JPMe,” the foreign brokerage said.
Jefferies said Kotak Mahindra Bank quantified the total impact of RBI ban at Rs 300-500 crore at PBT level (2 per cent of F26 PBT at top end. At the analyst call, Kotak Mahindra Bank said it remained largely comfortable on sustaining growth faster than system at 1.5-2 times nominal GDP with F25 advances growth at 20 per cent.
Asset quality, it said, remains sound and, despite NIMs tailing down through the year, ROAs have held up.
“The new CEO outlined priority on strengthening core tech and resilience. Notably, KMB’s tech spends at 10 per cent of opex compares favorably with large peers though absolute numbers maybe lower given scale,” Jefferies said.
Valuations at 10 times F26E parent PE are compelling for what is a high quality and growth compounding franchise, the foreign brokerage said.
Jefferies said Kotak’s total advances growth at 20 per cent YoY remains solid and better than large cap peer group. Besides, it said LDR at 84 per cent remains comfortable with incremental LDR in FY24 at 66 per cent. It thinks that the bank can continue to push on growth in FY25 and has flex on loan book mix shift to offset pressure on CASA to manage headline ROAs.
Jefferies has increased its FY25/26 EPS factoring in better ROAs. Kotak, it said, has seen consistent EPS upgrade over last one year and following the de-rating, it thinks values are cheap.
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