Kotak Mahindra Bank shares fall 5% after Q4 results but analysts see 30% upside

Shares of Kotak Mahindra Bank Ltd. are trading 5% lower on Monday, May 4, even after a steady March quarter performance, driven by improving asset quality and lower credit costs.

Brokerage firm Bernstein has a 'market perform' rating on the stock with a target price of ₹500, which implies a potential upside of 30% from current levels. The brokerage said that the bank ended FY26 on a strong footing, with broad-based improvement across key operating metrics.

Net interest margins expanded 13 basis points sequentially, the highest among large private peers, while credit costs eased to 39 basis points on the back of broad-based asset quality improvement.

Loan growth held up at 16% YoY, and controlled operating expenses helped offset softer non-interest income, supporting return ratios. However, return on equity at 12.3% continues to lag peers due to higher capital buffers.

UBS has a 'buy' rating with a target price of ₹500, citing a profit beat driven by higher pre-provision operating profit and lower credit costs.

Loan and deposit growth stood at 3.2% and 5.5% QoQ, respectively, while the CASA ratio improved by 200 basis points sequentially.

The brokerage sees favourable risk-reward at current valuations, supported by expected acceleration in operating profit growth, stable margins, and traction in non-lending businesses.

It also said that the expected credit loss transition impact is likely to remain under 2% of net worth.

JPMorgan, which has an 'overweight' rating and a target price of ₹476.

Net interest income grew 8.1% YoY, among the strongest in the peer group, while core margins held steady sequentially. Reported margins saw a boost due to day-count benefits. However, non-interest income remained subdued due to weaker card growth and treasury-related factors.

Nomura has retained a 'buy' rating with a ₹460 target price, pointing to strong margin delivery and a sharp improvement in asset quality.

The brokerage has raised its FY27-28 earnings estimates by 2%, driven by lower credit costs and better cost control. It expects return on assets and return on equity to improve to around 2% and 12% respectively by FY28, with an earnings CAGR of about 18% over FY27-28.

Jefferies, with a 'buy' rating and ₹450 target price, said profit growth was ahead of expectations, supported by lower provisioning.

Loan growth remained healthy, while deposit traction and CASA growth were strong. Asset quality trends improved across segments, including microfinance and credit cards.

However, the brokerage has trimmed earnings estimates by 3-4%, factoring in some pressure on margins due to higher deposit costs.

Management commentary

Management maintained a constructive outlook, highlighting stable asset quality, controlled slippages, and disciplined cost management.

Loan growth is expected to remain strong, guided at 1.5-2x nominal GDP, led by retail, SME, and selective unsecured lending.

While margins may see some moderation in FY27 due to higher deposit costs, the impact is likely to be partly offset by CASA growth and product mix.

The bank remains cautious on unsecured lending, focusing on calibrated growth through existing customer segments, while continuing to prioritise secured portfolios. Deposit mobilisation remains a key focus area, with a shift towards granular and lower-cost funding.

The Kotak Mahindra Bank stock ended 0.52% higher at ₹383.60 in the previous session and has gained over 6% in the past month.

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