Kotak Mahindra Bank: KMB Q4 miss leads to rating downgrades; stock price targets

The March quarter results of Kotak Mahindra Bank Ltd (KMB) missed analyst estimates on net interest income (NII), pre-provision operating profit (PPOP) and profit after tax (PAT) fronts, triggering rating downgrades by a couple of brokerages. 

Stock analysts said the bank's asset quality improved in Q4, slippage fell for a second quarter in a row and PCR also moved up from 73 per cent to 78 per cent, but rich valuation multiples, following a recent rally, cap upside potential on the stock. 

Nomura India said the core-bank currently trades at 1.9 times estimated FY27 book value per share and it sees limited upside potential ahead. "We downgrade KMB to Neutral with a revised target of Rs 2,200 (from Rs 2,110)," Nomura India said.

After around 15 per cent upswing in the stock price of Kotak Mahindra Bank in the past two months, the valuations are not as compelling as before, Nirmal Bang said.  "Further, a slowdown in loan growth in 4QFY25 is a cause of concern. We thus downgrade KMB from a ‘Buy’ to a ‘Hold’," it said.

Nuvama said the core NII rose 1 per cent QoQ and 8 per cent YoY, the lowest among large peers, and missed consensus by 2.5 per cent. Core PPOP decreased marginally QoQ, it said. 

"The stock has rallied 20 per cent since Q3 earnings. We believe KMB is better placed on growth and NIM (as it has cut fixed SA sharply and has a shorter tenor) than peers. All in all, we are increasing EPS and the TP, but downgrading the stock to ‘HOLD’ given its rich valuation. Our revised target of Rs 2,350/2.7x BV FY26E is higher than Rs 2,040 earlier," it said.

With KMB harbouring ambitions of becoming the third-largest private bank in the medium term, HDFC Institutional Equities expects investments to remain elevated to augment balance sheet growth. 

"We trim our FY25E/FY26E estimates by 2 per cent, factoring in pressure on NIMs, owing to rate cut cycle, and moderate our growth estimates; maintain Buy with a revised SOTP-based target of Rs 2,325 (standalone bank at 2.3x Mar-27 ABVPS)," HDFC Institutional Equities said.

While the FY25 growth WAS modest, the bank expects the same to rebound to 1.5-2 TIMES of nominal GDP growth backed by faster growth in the consumer segment and unsecured loans that should also support the overall yields. 

"KMB’s CA book has been growing at a healthy pace, and the CASA ratio has seen a slight improvement, while the CD ratio has witnessed a mild decline in 4QFY25. The reversal of the ban on card issuance shall revive customer onboarding, which shall result in the protection of yields in the repo cut cycle," MOFSL said. 

This brokerage suggested a 'Buy' rating on the stock with a target price of Rs 2,500.