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Buy This Banking Stock For A Target Price Of Rs 2180: Emkay Research

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Kotak Mahindra Bank (KMB) is one of India's powerful banking franchises with promoter stake of 26% and strong promoter led management. It has a presence across the financial services value chain. The bank is headquartered in Mumbai, India. It offers banking products and financial services to both corporate and retail customers in the areas of personal finance, life insurance, investment banking, and wealth management. The stocks of the bank closed at Rs 1,775.30 on Friday, 06, May 2022 after falling 1.24%.

 

Why should you buy this stock?

Why should you buy this stock?

According to the brokerage report, "Kotak Bank reported a strong 35% beat on PAT at Rs27.7bn, mainly led by sustained strong delivery on growth/margins, fees and contingent provision drawdown as it gains more confidence on the asset quality front. However, opex remained elevated to support strong business volume and future investment in tech (7.5% of opex). Kotak Mahindra Bank continued to surprise positively on credit growth, up 21% yoy/7% QoQ on the back of strong traction in mortgages and unsecured loans (albeit on low base)."

Sustained strong delivery on growth/NIMs; outlook remains positive
 

Sustained strong delivery on growth/NIMs; outlook remains positive

According to the brokerage, "Overall credit growth accelerated to 21% yoy/7% QoQ, mainly led by strong traction in mortgages, unsecured loans and MFI (albeit on a smaller base). Corporate growth remained sluggish, but real estate segment growth was strong. NIM surprised positively with a 16bps uptick, mainly led by a sharp jump in LDR to 87% and contained cost of funds." The bank has guided for sustained healthy credit growth, mainly led by retail growth and a clear focus on risk-adjusted earnings. The bank has nearly 70% of the book on a floating rate, while an additional 15-18% is part of the fixed-rate book and is due for maturity in the next one year.

The brokerage added, "The GNPA ratio improved 37bps QoQ to 2.3% due to lower slippages of Rs7.3bn (1.3% of loans) and higher recoveries/upgrades. The cumulative restructured pool declined to Rs12.1bn (0.44% of loans), which is the lowest among peers. Kotak Mahindra Bank continued to draw down its contingent buffer, which now stands at Rs5.5bn or 0.2% of loans (vs. 0.7-0.8% for large peers). KMB remains confident of lower LLP in FY23 as NPAs continue to decline."

Buy for a target price of Rs 2,180

Buy for a target price of Rs 2,180

The brokerage has revised its earnings estimates for FY23 by 4% but largely retains FY24 estimates. The brokerage ha said, "We expect the bank to deliver 2-2.1% RoA, but RoE would remain moderate at 13-14% due to its elevated capital levels." Factoring in higher CoE and moderate sustainable RoE of 14%, the brokerage has maintain a lower Target Price of Rs. 2180 as against the previous estimate of Rs. 2300 based on standalone P/ABV of 3.5x vs. earlier 4x." It added, "We value subsidiaries at Rs 620 per share. Retain Buy given decent upside from current levels."

Disclaimer

The stock has been picked from the brokerage report of Emkay Research. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.

Story first published: Friday, May 6, 2022, 17:59 [IST]
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