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What should investors do with Kotak Mahindra Bank after Q2: buy, sell or hold?

Net interest income increased 16.8 percent to Rs 3,913.2 crore in the July-September quarter.

Kotak Mahindra Bank share price added 5 percent in the early trade on October 27, a day after the private lender reported profit at Rs 2,184.5 crore in the September quarter, a year-on-year growth of 26.7 percent, aided by lower provisions.

Net interest income (NII), the difference between interest earned and interest expended, increased 16.8 percent to Rs 3,913.2 crore in the July-September quarter 2020 compared to the corresponding period previous fiscal.



Here is what brokerages have to say on Kotak Mahindra Bank:

Prabhudas Lilladher

Kotak Mahindra Bank delivered a strong 27 percent YoY growth in earnings at Rs 21.8 billion (PLe: Rs14.9bn), which was much above our and consensus estimates, said Prabhudas Lilladher.

The strong beat was on the back of (i) continued NII traction of 17% YoY despite loan book flattish QoQ & -4% YoY (ii) recovery in fees (iii) higher treasury income (had not booked in Q1FY21) and (iv) substantially lower provisioning than expectations.

We retain 'accumulate' with revised target price of Rs 1,503 (from Rs 1,389) based on 3.1x core Sep-22 BV & Rs293 for subs (rolled over from Mar-22), it added.

LKP Research

Kotak Mahindra Bank reported strong 2QFY20 results with the key pointers being the significant improvement in collection efficiencies on month-on-month basis, gross slippage down to Rs 2.64 billion against Rs 7.96 billion in 1QFY21, as NPA recognition stood still, sequential credit growth stood positive at 0.4 percent YoY; with a conservative approach to risk aversion, sequentially lower cost to income ratio (38.5 percent v/s 41.7 percent in the previous quarter) driven by higher profitability and lower opex.

The decline in provisioning expenses (Rs 3.6bn v/s 9.6 bn in the previous quarter) also led to PAT growth of 75.5 percent sequentially. The bank has made total COVID provision of Rs 12.8 billion as of 2QFY21.

The total contingent provisioning (COVID + Standard + Specific) stood 1.13 percent of net advances. Total PCR (including COVID, general and specific provision) stood above the GNPL amount, headline NIM inched up 18bps QoQ to 4.58 percent on the back of lower cost of deposits.

LKP Research believes the bank should grow conservatively with a marginal blip in asset quality. With normalisation of credit cost, it estimates a ROA/ROE of 1.8%/12.4% in FY22E. Thus, it recommends 'buy'.

Sharekhan

The broking firm values Kotak Mahindra Bank on a standalone basis at ~3.9x its FY2023E book value and its subsidiaries at ~Rs 360 per share. The stock has seen corrections by ~19 percent from its highs and it believes the risk-reward is favourable, indicating an attractive entry point for long-term investment.

With the recent QIP and capital issue, the bank is placed comfortably with a Tier-1 capital of 22.8 percent (standalone) with the wherewithal for probable inorganic opportunities. Broking house recommends a buy on the stock with our SOTP based price target (PT) of Rs 1,730.

Dolat Capital

Despite weak growth trends, continued moderation in CoF has aided NII growth. Growth should not be a challenge eventually, given the comfort on CoF. Dolat Capital expects incremental asset quality risks to be limited for bank owing to its conservative stance on lending and strong risk practices.

However, trading at 4.1x 1 year forward ABV, valuations factor in most positives. Rolling over our estimates to Sep22E, it maintains 'accumulate' rating with a revised TP of Rs 1,580 (from Rs 1450 earlier) based on 3.3x Sep-22E ABV for the standalone bank and value of subsidiaries, implying a P/ABV of 4.5x.

Motilal Oswal

Kotak Mahindra Bank reported a strong quarter, with lower provisions and higher treasury income driving earnings. The bank continues to report steady progress in building a strong liability franchise, with the CASA ratio improving further to ~57 percent. Loan growth remains flattish as the bank remain cautious in a weak macro environment, however, a strengthening liability franchise would improve the bank's competitive positioning and aid asset growth.

Motilal Oswal increases its FY21/FY22 earnings by 27 percent/20percent, led by steady revenues and sharp decline in provisioning expenses and introduce FY23 to our estimates. It upgrades rating to 'buy' after 10 quarters and revises teh target price to Rs 1,650 (3.2x Sep'22E ABV + Rs 493 for subs).

ICICIdirect

The bank's long-term focus continues on maintaining risk-adjusted returns. With a shift in focus, ICICIdirect expects growth to pick up gradually in certain segments before gathering a higher pace in the medium term. Adequate provision provides comfort to deal with volatility in asset quality.

With levers present for sustained growth in earnings and the bank being well placed on the capital front to drive business growth, making it an attractive franchisee. The bank has been a consistent performer, driven by reasonable RoE, high RoA ratios and strong margin profile. Hence, premium valuations for management strength, sustainability. It maintains 'buy' rating with SOTP target price of Rs 1634, valuing at 3.9x FY22E.

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