Target: ₹2,124
CMP: ₹1,719.05
Kotak Mahindra Bank (KMB) has shown a decline in performance over the last three years (3Y return: -7.4 per cenet, 1Y return: -13.3 per cent) compared to the returns of Bank Nifty (3Y return: 37.4 per cent, 1Y return: 11.5 per cent) and Nifty (3Y return: 43.6 per cent, 1Y return: 21.6 per cent).
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This underperformance can be attributed to several factors, including the stepping down of Uday Kotak, slower business growth relative to Kotak’s usual standards, and supervisory actions by the RBI. However, the bank has maintained strong asset quality during this period.
Looking ahead to FY25, there are indications of a revival, particularly evident in robust deposit growth, which is expected to bolster business expansion given the comfortable Capital to Deposit Ratio (CDR) level at 84 per cent. We anticipate that margins will remain steady in the near term, supported by favourable credit costs. Our estimate for FY26 Return on Equity stands at 18.5 per cent, up from the current level of 15.5 per cent, driven by a projected credit growth of 18 per cent CAGR for FY24-26.
Furthermore, the Bank’s valuation is currently at 3(x) trailing Price-to-Book Value per Share (P/BVPS), compared to the 5-Year median P/BVPS of 4.1(x). We believe that there is a strong likelihood of the stock undergoing rerating due to improving return ratios.