Kotak Mahindra Bank Falls 6% After Q1 Profit Dips 7% YoY; Should You Invest?
Kotak Mahindra Bank Shares: Shares of Kotak Mahindra Bank dropped 6.5% to an intraday low of Rs 1,986.55 on the BSE in early trade on Monday, July 28, after the lender reported a 7% year-on-year decline in standalone net profit for Q1FY26. The profit fell to Rs 3,282 crore from Rs 3,520 crore in the same quarter last year, triggering investor concerns.
Kotak Mahindra Bank reported a decline in net profit for the June quarter of FY26, despite a healthy 6% year-on-year (YoY) growth in Net Interest Income (NII), which rose to Rs 7,259 crore from Rs 6,842 crore in Q1FY25. The drop in profit was primarily due to a steep 109% YoY rise in provisions and contingencies, which stood at Rs 1,208 crore.
Net Interest Margin (NIM) remained strong at 4.65% but saw a 32 basis points (bps) quarter-on-quarter (QoQ) contraction due to pressure from lower lending rates and a rising contribution from the low-yielding corporate book. Credit growth was healthy at 14% YoY, but margin compression impacted overall profitability.
Management indicated that NIM pressure may persist in Q2 as the full impact of the 50 bps repo rate cut flows through, but expects a gradual recovery thereafter, supported by a reduction in costs, including savings account (SA) rates.
Asset quality weakened in the quarter, with slippages rising to 1.9% due to stress in microfinance institutions (MFI), retail commercial vehicles (CV), and Kisan Credit Card (KCC) loans.
At 9:15 a.m., shares of Kotak Mahindra Bank were trading at Rs 2,013.3 on the NSE, down 5.3%.
Brokerages reacted cautiously to the Q1 performance, pointing to weak profitability and asset quality concerns:
Nomura maintained a 'Neutral' rating with a target price of Rs 2,150. It lowered FY26–28 EPS estimates by 3–7%, citing concerns around NIM compression and rising credit costs. Nomura noted that the stock trades at 1.9x FY27 book value, indicating limited near-term upside.
Morgan Stanley retained an 'Overweight' rating with a target of Rs 2,600. While it was encouraged by the bank's above-industry growth, it flagged the drop in NIMs and rise in non-performing loans. It expects Q2 to remain tough but sees earnings gaining momentum from H2.
Motilal Oswal reiterated a 'Buy' rating but trimmed its target to Rs 2,400. It expects NIM to bottom out in Q2FY26, followed by recovery due to the full impact of rate transmission, deposit repricing, and CRR benefits. The brokerage also expects growth in the unsecured lending segment to aid margins and profitability.
Bernstein, however, maintained a 'Market Perform' rating with a target of Rs 1,950. It believes continued stress on asset quality and elevated credit costs will weigh on the stock's valuation.
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July 28, 2025, 10:25 IST
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