Q1 impact: Jefferies, CLSA raise target price for Kotak Mahindra Bank post earnings

CLSA maintained its buy rating but raised its target to Rs 1,750 from Rs 1,665 earlier. The global brokerage firm is of the view that lower funding cost is likely to aid growth but valuation remains rich

Most brokerage firms retained their rating for Kotak Mahindra Bank after June quarter results but CLSA and Jefferies raised their respective 12-month target price.


Kotak Mahindra Bank on July 22 said its standalone profit in the April-June period grew 32.7 percent year-on-year to Rs 1,360.2 crore. The growth was largely driven by lower provisions and higher net interest income.

CLSA maintained its buy rating but raised its target to Rs 1,750 from Rs 1,665 earlier. The global brokerage firm is of the view that lower funding cost is likely to aid growth but valuation remains rich.

CASA has emerged as its key strength, and the recent cut in the savings deposit rate could lift its net interest margin (NIM).

The management indicated there were stable trends in the quality of personal loans. Valuation is at a premium to its peer group but seems justified by its better CASA.

The scope for re-rating is fairly limited. CLSA expects a 22 percent profit CAGR over FY19-22 and the return on equity (ROE) to improve toward 15-16 percent as leverage is optimized.

Another brokerage firm, Jefferies retained its underperform rating post Q1 results but raised its target to Rs 1,225 from Rs 1,175 earlier.

The bank delivered below expectation result led by weaker loan growth. The net interest income (NII) too was weaker than expected, it said.

Headline asset quality deteriorated with consolidated slippage ratio elevated at 1.7 percent. The NPL ratios deteriorated across the bank, car financing and real estate business. While earnings may grow, Jefferies is of the view that valuation at 4.8x P/B is slightly steep.

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