This Bank Stock Is Axis Securities’ Pick of The Week For A Target Price of Rs. 1941

The domestic brokerage firm Axis Securities has placed a buy call on the shares of Kotak Mahindra Bank and has chosen the stock as a pick of the week to buy for a target price of Rs 1941. The stock is currently trading at a market price of Rs 1,816.60 on the NSE as of 17 Mar 2022, 10:09 am IST.

Investment rationale for Kotak Mahindra Bank (KMB)

As per the brokerage "Traditionally, KMB has not shied away from growth and its search for better pricing against the risks undertaken has led it to post a volatile loan growth trend vis-à-vis its peers. However, KMB has improved upon its loan growth trajectory over the last couple of quarters. In Q3FY22, Loan growth picked up by 18% YoY and 8% QoQ, led by Home Loans (up 38% YoY/ 12% QoQ). The management believes the bank is structurally ready to push the growth pedal with its low balance sheet risk. Opportunities exist for the bank both in the marketplace and on the balance sheet. We expect growth to be driven by expanding distribution along with deeper channels and digital infrastructure. The bank is quite open to organic as well as inorganic opportunities."

"The bank's CASA ratio at ~60% is amongst the best in the industry. This gives the bank leeway to push on growth even in a rising interest rate scenario. Low funding costs have helped the bank protect its margins (NIMs at 4.6%). SA mix at 41% of the overall deposits is superior to most peers. While the bank's customer acquisition strategy is providing it with lucrative rates of interest for its SA deposits, the increased traction in low-cost deposits has enabled KMB to incrementally reduce its SA pricing while maintaining deposit stickiness. This strategy has enabled KMB to emerge as the lowest-cost-of-deposit franchise amongst its peers," says Axis Securities.

"KMB has maintained a steady asset quality with its stringent underwriting standards and also targets risk adjusted returns on lending. In Q3FY22, G/NNPAs improved to 2.71%/0.79%, down 48bps/27bps QoQ. Slippages were low for the quarter at Rs 7.5 Bn (0.3% of advances). PCR is robust at 71%. KMB carries outstanding COVID-related provisions of Rs 10 Bn. SMA-2 advances fell to Rs 2.98 Bn (v/s Rs 3.88 Bn in Q2FY22). The outstanding restructured portfolio is just 0.54% of advances and stands at Rs 13.6 Bn. The annualized credit cost was 35bps, excluding writeback of Covid provisions," the brokerage has noted.

Buy for a target price of Rs 1941

Axis Securities has claimed "We believe KMB remains best placed across metrics owing to its best-in-class liability franchise, prudent underwriting, strong capital position, and adequate margin levers. The management intends to focus on growth on the asset side through higher customer acquisition, deepening relationships, and cross-selling, moving away from its 2011 strategy of leaning towards liability first and then cross-selling asset products. We are positive on the stock given the management strength and sustainability, strong deposit franchise, and robust NIM. We recommend a BUY rating on the stock with a target price of Rs 1941."

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. 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.