Kotak Mahindra Bank, one of India's leading private sector banks, recently announced its fourth-quarter (Q4FY23) results, beating estimates and posting strong financial performance.
Following the Q4 scorecard, domestic brokerage firms have maintained their optimistic outlook on the stock and anticipate that it will exceed its previous record high.
The private sector lender, on April 29, reported a better-than-expected 26% increase in its standalone net profit at ₹3,496 crore for the January-March quarter. The growth in net profit is attributed to higher net interest income and strong loan growth.
The bank had posted a net profit of ₹2,767 crore in the corresponding quarter of the last fiscal and ₹2,792 crore in Q3 FY23. Its net interest income during the quarter came in strongly at ₹6,103 crore, a jump of nearly 35% YoY and 8% QoQ. While net interest margin stood at 5.75% in Q4FY23, an expansion of 97 basis points YoY.
Despite a series of rate hikes by the Indian central bank starting from May last year and continuing through February of this year, which pushed the repo rate to 6.5% from 4% (an increase of 250 basis points), the credit off-take in the system remained strong. This, in turn, helped Indian banks to report robust credit growth.
For the fiscal year ending March 31, 2023, the bank registered a net profit of ₹10,939 crore, which is an impressive increase of 27.55% compared to the net profit of ₹8,576 crore in FY22.
The bank continued its loan growth momentum at 18% YoY and 3% QoQ. The growth was mainly fueled by mortgages, which increased by 22% YoY and 4% QoQ, followed by personal loans, which rose by 56% YoY and 8% QoQ, and credit cards, which grew by 81% YoY and 10% QoQ.
The bank's asset quality also improved sharply, with the gross non-performing assets (NPA) ratio at 1.78% in Q4FY23, a drop from 2.34% in Q4FY22, and the net NPA ratio standing at 0.37%, down from 0.64% in Q4FY22. The positive results have led to optimistic projections for the bank's future growth potential.
Brokerages maintain positive outlook on the bank
Following the bank's March quarter performance, domestic brokerage firm ICICI Direct Research maintained its 'buy' tag on the stock with a target price of ₹2,290 apiece. This target price is higher than the stock's previous record high of ₹2,253 apiece.
"Continued investment in tech and branch expansion may elevate Opex in the near term, though benefit will accrue subsequently. Gradual improvement in contribution of subsidiaries to aid valuation of the consolidated entity," said ICICI Direct.
Likewise, HDFC Securities kept its 'add' rating on the stock with a target price of ₹2,190 apiece. The brokerage stated that the bank is well-placed to gain market share and sustain superior profitability metrics by focusing on risk-adjusted growth. However, it noted that the bank needs to accelerate its pace of deposit mobilization, which could limit incremental margins.
Additionally, the brokerage is looking for evidence of continued productivity improvements before becoming more optimistic about the benefits of operating leverage.
"With the bank’s margins having peaked out, margin compression is imminent. However, stable opex growth and muted credit costs will provide some respite, thereby offsetting the impact of margin pressures, and we expect KMB to register an earnings growth of 16% CAGR over the medium term," said brokerage firm Axis Securities.
"We tweak our NII estimates by 6–7%, factoring in lower NIMs of 5.3% over FY24-25E. We continue to maintain a positive outlook on the stock given the management's continued thrust on growth with strong execution capabilities and a healthy deposit franchise," added the brokerage.
Axis Securities retained its 'buy' recommendation on the stock with a target price of ₹2,180 apiece, indicating a potential increase of 13% from the current market price (CMP).
37 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.