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Kotak Mahindra Bank shares have been underperforming for near two years with its standalone bank valuation de-rated to 1SD-below-mean. However, the banking stock has been giving upside bounce after ushering in July 2022 and it seems that stock is trying to come out of the consolidation phase. Goldman Sachs believes that the bank stock may go up to 2,135 per share levels in next 12 months and the banking shares may hit $100 billion market cap by FY27.

On earning and valuations of Kotak Mahindra Bank shares, Goldman Sachs report says, "We believe Kotak Mahindra Bank is positioned for an earnings upgrade cycle; we raise our estimates by 7%/13% for FY23E-FY25E on higher margins and lower loan-loss provisions, driving our 12-m TP to Rs2,135 (from Rs1,984, based on a blend of relative P/E and SOTP). We expect core operating profits to grow at a 22% CAGR (vs. a <15% CAGR in FY19-22) and net profits to grow at an 18% CAGR in FY22-25E (21% adj. for provision reversal in FY2022), and our FY23E-25E estimates are c.8% higher on average than VA consensus."

Expecting big upside in Kotak Mahindra Bank's market cap, Goldman Sachs report says, "The key debates have been the bank’s risk appetite and its ability to deliver sustainable growth by utilizing excess capital and sweating its infrastructure to drive the ROEs higher. We believe Kotak Mahindra Bank is well-positioned this cycle to put capital to work, and successful execution of its retail asset strategy to drive the MCap to US$100bn by FY27E. With these positives and with 28% upside to our 12-month target price (vs. the 24% average for our coverage), we upgrade Kotak Mahindra Bank to Buy from Neutral and add the shares to our Conviction List."

'We turn constructive on Kotak Mahindra Bank given its: (1) beneficial position in a rising interest rate environment; (2) sustainable loan growth at a +20% CAGR on utilization of excess capital (c.500bps v/s PVT banks) and realize operating leverage aided by its digital platform (“811"); (3) best in class PPOP-ROA; and (4) limited dilution risk as promoter’s stake already at RBI limits, leading to an improvement in ROEs of c.200bps in FY22-25E," the brokerage report added.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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