Kotak Bank share price falls almost 2% post Q4 results; should buy, sell or hold
3 min read 02 May 2023, 10:35 AM ISTKotak Mahindra Bank's gross non-performing assets (GNPA) declined sharply to 1.78 per cent in Q4FY23 versus 2.34 per cent in Q4FY22 and 1.90 per cent in Q3FY23.
PremiumAt first glance, it appears that the market is not happy with the March quarter results of Kotak Mahindra Bank as the shares of the private lender fell about 2 per cent in the morning trade on BSE on Tuesday after the bank reported a 26.31 per cent year-on-year (YoY) and 25.20 per cent quarter-on-quarter (QoQ) rise in Q4FY23 net profit at ₹3,495.59 crore.
The bank reported its net interest income (NII) which is the difference between interest earned and expended, recorded 34.97 per cent growth to ₹6,102.55 crore as against NII of ₹4,521.4 crore in Q4FY22.
Gross non-performing assets (GNPA) declined sharply to 1.78 per cent in Q4FY23 versus 2.34 per cent in Q4FY22 and 1.90 per cent in Q3FY23.
The bank’s net interest margin (NIM) rose to a multi-quarter high of 5.75 per cent, up 28 basis points from Q3.
Read more: Kotak Mahindra Bank earns a net profit of nearly ₹3,496 crore in Q4 up by 26% YoY
Brokerages retain views, remain mixed
The March quarter numbers of Kotak Mahindra Bank fetched mixed reviews from brokerages firms while most of them retained their earlier views.
Most of them agreed that the bank's Q4FY23 numbers were healthy but they hint that the bank may find it tough to maintain the margin going ahead and the margin might have peaked in Q4.
Brokerage firm Motilal Oswal Financial Services has a 'neutral' call on the Kotak Mahindra Bank stock with a target price of ₹2,050 and raised its earnings estimates by 7 per cent and 3 per cent for FY24 and FY25, respectively.
The brokerage firm expects Kotak Mahindra Bank to deliver an RoA (return on assets) and RoE (return on equity) of 2.3 per cent and 13.8 per cent, respectively, in FY25.
Motilal observed that Kotak Mahindra Bank delivered a healthy quarter, with modest loan growth, strong NII, and controlled provisions.
NIM expanded further, and the outlook remains buoyant, given the improving asset mix and a higher mix of floating loans. Asset quality remained robust, with a further decline in GNPA/NNPA, while the restructured book remained under control at about 0.22 per cent of loans, the brokerage firm pointed out.
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Nuvama Wealth Management maintained a 'hold' call on the stock but raised the target price to ₹2,140 from ₹1,980 earlier.
Nuvama said Kotak Mahindra Bank delivered another back-to-back strong quarter outperforming on NII, fees, opex and credit cost in Q4FY23. Growth in customer assets at 3 per cent QoQ is lower than peers due to weak corporate growth. Retail loan growth held strong though at 25 per cent YoY and 6 per cent QoQ.
The brokerage firm further added that Kotak's earnings were strong and best-in-class but may have peaked.
"With 79 per cent of its assets due to be repriced within a year, Kotak’s balance sheet is most sensitive to rates among peers. Furthermore, Its deposit franchise is not as strong as the other large three banks (HDFC Bank, ICICI and Axis)," said Nuvama.
"We argue NIM is near peak, and once policy rate hikes end in FY24, the downward repricing of loans would drag NIM. At 79 per cent, Kotak has the largest share of assets that reprice within a year. Kotak’s savings deposit franchise is weaker than its large peers. Given its premium valuation and weak deposit franchise, we retain a hold," said Nuvama.
On the other hand, brokerage firm JM Financial maintained a buy call on the stock with a target price of ₹2,080 and raised its FY24 and FY25 earnings per share (EPS) by 5 per cent and 3 per cent, respectively.
"We believe Kotak’s focus on risk-adjusted underwriting has been its key strength over cycles and it continues to hold the bank in good stead. We like the bank’s growth stance (which could be aided by potential inorganic growth plays) and the next leg of valuation upsides will need clarity on succession, the ability to further improve the liabilities franchise," said JM Financial.
Disclaimer: The views and recommendations given in this article are those of the brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
