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Kotak Mahindra Bank Shares Fall After Q3 Results, Analysts Cut Earnings Estimates

Most analysts cut their earnings estimate for Kotak Mahindra Bank even as they maintained their ratings and target prices.

A security guard stands inside a Kotak Mahindra Bank ATM in Mumbai, India. (Photographer: Prashanth Vishwanathan/Bloomberg News)
A security guard stands inside a Kotak Mahindra Bank ATM in Mumbai, India. (Photographer: Prashanth Vishwanathan/Bloomberg News)

Most analysts cut their earnings estimate for Kotak Mahindra Bank Ltd. after the company reported its December quarter results, but maintained their ratings and target prices on the stock.

That comes after the private lender’s advances grew 10 percent year-on-year to Rs 2.16 lakh crore, compared with an estimated 14 percent growth. The bank also lowered its loan growth guidance to low teens against earlier guidance of mid-teens.

Brokerages have cut their profit after tax estimates for the lender by 1-9 percent.

Kotak Mahindra Bank Q3 Results: Key Highlights

  • Net Interest Income up18 percent YoY at Rs 3429.53 crore
  • Net profit up 23.6 percent YoY at Rs 1,595.9 crore
  • Gross NPAs at 2.46 percent vs 2.32 percent QoQ
  • Net NPAs at 0.89 percent vs 0.85 percent QoQ
  • Slippages at Rs 1,062 crore in December quarter
  • Provisions at Rs 444 crore vs Rs 408 crore QoQ

Here’s what brokerages have to say on Kotak Mahindra Bank's third-quarter results:

Kotak Mahindra Bank Shares Fall After Q3 Results, Analysts Cut Earnings Estimates

Jefferies

  • Slower than expected loan growth, NII supported by higher margins.
  • Margins preferred over growth.
  • Lumpy corporate slippage in the quarter pushed up credit costs.
  • Asset quality trends stable in agriculture and commercial vehicles; some inch up in unsecured loans and cards.
  • Cut FY20 earnings per share estimate by 2.2 percent and FY21/22 EPS estimate by around 6-7 percent factoring in lower loan growth, stable margins and higher credit cost for FY20.

Citi

  • Kotak Mahindra Bank expects loan growth to improve as nominal GDP growth improves and it targets growth at 1.5-2x the nominal GDP growth.
  • Expect Kotak Mahindra Bank to maintain its conservative stance in lending given the slow economic environment.
  • Lower FY20E and FY21E PAT estimates by around 4 percent as we factor in lower growth.
  • Maintain ‘Neutral’; target price Rs 1,860 per share.

Nomura

  • Third quarter was disappointing with weak loan growth and marginally higher credit costs.
  • With around 6-9 percent earnings forecast cuts, we reduce target price to Rs 1,600 vs Rs 1,650 per share earlier.

IDFC

  • Management guides to low double-digit loan growth (less than mid-teens) for FY20 against the earlier guidance of mid-teens.
  • Kotak has managed its asset quality better than any other bank. So unlike for the rest of the sector, asset quality is not a concern here.
  • Slowing growth remains a key monitorable for the lender given its rich valuation.
  • A miss on loan growth in the quarters ahead would be viewed negatively.
  • Cut earnings estimate by 5.5-6.8 percent for FY20-21.
  • Maintain ‘Outperformer’ given the bank’s superior asset quality and high profitability.

Edelweiss

  • Current challenges do warrant a cautious stance, management seems to have gotten too risk conscious.
  • Bank may have let go of a few opportunities despite slackened competition.
  • As and when the environment becomes more conducive, the bank’s strong capitalisation, scale and wide distribution will help it garner maximum benefits of any churn in competition.
  • Marginal rise in stress but nothing concerning.
  • Maintain ‘Buy’, target Rs 1,847.

Phillip Capital

  • PAT below estimates due to higher operating expenses and provisions.
  • Credit growth was tepid; NII was in line due to higher NIMs.
  • Subsidiary operating performances were resilient.
  • Strong capital and high proportion of low‐cost deposits should allow the bank to grow its loan book to capture market share. However, the lender continues to remain cautious given unfavourable risk return matrix.
  • Cut PAT estimates by 1-6 percent for FY20-21.
  • Maintain ‘Neutral’; target Rs 1,660

Motilal Oswal

  • Loan growth moderates reflecting weak macro.
  • Bank’s loan growth is moderating due to weaker trends in corporate banking.
  • Slippages stay elevated; Provisioning remains stable.
  • Continue believing in the bank's capability to deliver in a challenging environment and appreciate the progress it is making in building a strong liability franchise.
  • Cut our EPS estimate for FY21-22 by 4-7 percent, primarily as we factor in lower loan growth assumption.
  • Maintain ‘Neutral’ with a TP of Rs 1,625 per share.

Emkay

  • Slower growth, asset quality blip results in earnings miss.
  • Cut our FY20-22E EPS for by 3-9 percent factoring in lower loan growth and higher LLP.
  • Expect the bank’s standalone RoA/RoE to improve to 2/14 percent over FY20-22E from 1.7/12 percent in FY19, mainly driven by margin expansion, moderation in cost ratios and the recent tax cuts.
  • Bank offers a safe harbour in the current risk-off environment given its superior risk-adjusted return ratios and strong capital position.
  • Maintain ‘Hold’ with a TP of Rs 1,720.