Price Movement of Kotak Mahindra Bank Share
The Kotak Mahindra Bank share has underperformed the broader market since the date of results.
One reason for the recent fall is liquidity-driven and easy to guess as the stock is FII owned (45%) and last week was prominently a week of sell-out by FIIs.
However, when we compared the performance of the stock with its closest peer in terms of asset quality and overall market presence i.e. HDFC Bank the following charts show a divergence in performance :
The divergence gains prominence if we compare these 2 over the past month.
We have made a detailed video analyzing the quarterly performance of Kotak in a short must-watch video below:
Let us analyze the past quarter results of both the banks. But first, let’s have a close look at KMBL broad quarterly financials:
NII (Net Interest Income)
PBT (Profit Before Tax)
Profit before tax grew by ~20% YoY to ₹3,455 crores in Q3 FY21.
The PBT in Q3 was lower than Q2 due to the following: Rs 220 cr other operating expense + Rs 240 cr of additional provisions in Q3 vs Q2 FY 21.
An increase in promotional expenses and recovery costs led to incremental operating expenses.
PAT (Profit After Tax)
NIM (Net Interest Income)
Cost-to-Income Ratio of Kotak Mahindra Bank
CASA (Current Account Saving Account) Ratio
Return on Asset (%)
Return on Equity (%)
Asset Quality of Kotak Mahindra Bank
In terms of Interim Order of Hon. Supreme Court, most banks had not classified any NPAs post 31st August 2020.
Had the banks classified the borrowers more than 90 days overdue on 31st Dec, 2020 as NPA, GNPA would be 3.27% (30th Sep, 2020:2.70%).
If we compare the same metric with HDFC Bank then HDFC Bank’s proforma Gross NPA ratio and pro forma Net NPA ratio would have been 1.38% on December 31, 2020 (at September 30, 2020: 1.37%)
Overall also the Kotak Mahindra Bank asset quality (GNPA%) have been under pressure for the past 1 year as shown below:
The Bank has increased its NBFC exposure last quarter as it has disbursed more loans to Housing Finance Companies.
Valuation of Kotak Mahindra Bank Share
It trades at the upper end of its own trading history & at a premium to HDFC Bank.
Different Brokerage Views on Kotak Mahindra Bank
Goldman Sachs remained neutral on the stock while raised the target price to Rs 1,986. Morgan Stanley Research house has kept an equal-weight rating with a target of Rs 2,025
UBS has maintained a sell rating and raised the target to Rs 1,700.
CLSA has maintained underperform rating with a target cut to Rs 1,850 from Rs 2,000.
The Asset Quality seems to be the spoilsport on Kotak Mahindra Bank. Hence, we think the stock shall be under pressure.
If we see the historical PE of KMBL then it has been approaching its long-term average of 38. So the fall shall be curbed shortly as the institutions shall support buying below 30 PE so it is expected to rebound shortly.
For Long term investor, it may present a buying opportunity as long term fundamental remains intact.
All the Information provided in the blog is for general guidance and educational purpose. Don’t consider this as a recommendation from our side.
Cover Image: Bloomberg Quint