Kotak Mahindra Bank shares can fall to Rs 1,950? Brokerages just slashed target prices
ADVERTISEMENT The sell-off followed India's fourth-largest private bank by market value reporting a 7% year-on-year (YoY) decline in standalone net profit to Rs 3,282 crore, missing analyst estimates due to a sharp deterioration in asset quality and significant margin compression.
The bank's net interest margin (NIM) dropped sharply by 32 basis points quarter-on-quarter (QoQ) to 4.65%, while specific credit costs surged from 64 basis points to 93 basis points — a 50% rise in value terms over the previous quarter.
Credit cost and stress in the MFI segment peaked this quarter and stabilised in the credit card and personal loan segments, the bank's management said. However, they flagged emerging stress in the retail commercial vehicle segment, which requires cautious monitoring.
Emkay Global delivered the harshest verdict, maintaining its REDUCE rating with an unchanged target price of Rs 1,950. "Factoring in the 1Q earnings miss, we trim FY26-27E EPS by 4-5% and expect RoA to settle at ~2%. We retain REDUCE on KMB with unchanged TP of Rs1,950, given the rich valuations (2.1x FY27E ABV) and relatively sub-optimal return ratios (RoE@11-12%) vs large peers," the brokerage said. Bernstein also set a target of Rs 1,950 with a Market Perform rating, highlighting the "weak quarter across key metrics—a sharp NIM compression & a multi-quarter high in credit costs driving RoA below 2%."
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Also Read | Kotak Mahindra Bank shares plunge over 6% after muted Q1 show. Should you sell now?
Morgan Stanley remained relatively optimistic but still cut its target price to Rs 2,600 from Rs 2,650 while maintaining an Overweight rating. The brokerage called it a "soft quarter in a tough macro" and warned that "Q2 will remain tough due to further margin decline."
ADVERTISEMENT Nomura lowered its target to Rs 2,150 from Rs 2,200, with a Neutral rating, increasing credit cost estimates by 7-15 basis points and lowering NIM forecasts. "We expect KMB to deliver RoA/RoE of 1.8-2%/11-12% over FY26-28F. KMB (core-bank) currently trades at 1.9x FY27 BVPS, and we see limited upside potential," Nomura analysts said.
ADVERTISEMENT Nuvama cut its target to Rs 2,020, slashing EPS estimates by 7-8% for FY 26-27. "At 2.3x BV FY26E, the risk-reward is unfavourable given better earnings by peers," the brokerage noted.Jefferies bucked the trend, maintaining its BUY rating and Rs 2,550 target price despite trimming FY26 earnings by 5%. "Valuation at 18x FY26E P/E is in line with ICICI & at a slight discount to HDFCB, hence, we see limited scope to re-rate," Jefferies said.Despite the profit decline, Kotak demonstrated resilience in core business metrics, with loan growth of 14% year-on-year and 4% quarter-on-quarter, while deposits expanded 15% YoY and 3% quarter-on-quarter.
ADVERTISEMENT The bank's fee income growth also slowed sharply on a yearly basis, adding to investor concerns about the sustainability of its revenue streams amid a challenging operating environment.Management expects margins to improve from the third quarter onward, driven by deposit repricing benefits and the recent CRR cut. However, the timeline for recovery remains uncertain, as the banking sector continues to grapple with asset quality pressures and margin headwinds.
Also Read | Kotak Bank Q1 results: PAT falls 7% YoY to Rs 3,282 crore. NII up 6%
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