Emkay Global Financial has given Buy recommendation for Kotak Mahindra Bank with a target price of Rs. 2180 in its research report issued on May 05, 2022

Emkay Global Financial’s report on Kotak Mahindra Bank

Kotak Bank reported a strong 35% beat on PAT at Rs27.7bn, mainly led by sustained strong delivery on growth/margins, fees and contingent provision drawdown as it gains more confidence on the asset quality front. However, opex remained elevated to support strong business volume and future investment in tech (7.5% of opex). KMB continued to surprise positively on credit growth, up 21% yoy/7% qoq on the back of strong traction in mortgages and unsecured loans (albeit on low base). It expects to sustain strong credit growth and believes that a higher CASA ratio (61%) and a floating rate book (70%) should support its healthy margin trajectory in a rising rate cycle. KMB rejigged its board, with Gaurang Shah (ED) being moved out of the bank and elevated as Chairman of Kotak General Insurance. KVS Manian (age 60 yrs) has been reappointed as ED, while consumer banking head Shanti Ekambaram (59 yrs) has been elevated as ED, which we believe hints at a potential top management change, including MD & CEO Uday Kotak and DMD Dipak Gupta in Dec’23.

Outlook

We revise our earnings estimates for FY23 by 4% but largely retain FY24 estimates. We expect the bank to deliver 2-2.1% RoA, but RoE would remain moderate at 13-14% due to its elevated capital levels. Factoring in higher CoE and moderate sustainable RoE of 14%, we lower our TP to Rs2,180 (vs. Rs2,300) based on standalone P/ABV of 3.5x vs. earlier 4x. We value subsidiaries at Rs620 per share. Retain Buy.

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