Broking firm, Motilal Oswal has downgraded the shares of Kotak Mahindra Bank to "neutral" citing an unfavorable risk reward ratio after a sharp outperformance in recent months.
Kotak Mahindra Bank has delivered 32% returns since our Oct'20 upgrade, resulting in a sharp expansion in trading multiple to 4.2x FY22E ABV - a 17% premium to its five year average multiple.
The sharp outperformance in the stock (aided by MSCI inclusion) when seen in the context of growth outlook and return ratios (average RoE of 12.7% over FY21-23E) drives us to downgrade our rating to Neutral," the broking firm has stated.
According to it, during 2HFY19-2HFY21, Kotak Mahindra Bank delivered tepid loan growth (5% CAGR, 3% excluding ECLG linked loans).
"The management expects an improvement in asset growth after doing an exemplary job in building a robust liability franchise. We currently estimate loan growth to sustain at 12% CAGR over FY21-23E.
Kotak Mahindra Bank has delivered 18%/19%/21% CAGR in BV over the past 3/5/10 years owing to successive capital raises. However, with Tier I at 22.8% (highest in the past decade), modest growth trajectory and no further requirement to dilute as the promoter holding issue is already settled, we estimate book value to compound at 13% CAGR over FY21-23E. We, thus, downgrade our rating to Neutral and revise our target price to Rs 1,800 per share(3.6x Sep'22E ABV + value its subsidiaries at Rs 511/share)," the broking firm has stated.
The shares of Kotak Mahindra Bank were last trading at Rs 1,859 on the NSE.