On Wednesday, Citi analysts upgraded Kotak Mahindra Bank (NS:KTKM) Ltd. (KMB:IN) from a 'Neutral' to a 'Buy' rating and increased the price target to INR 2,070.00 from INR 1,940.00.
The revision reflects the bank's potential to sustain growth in its advances, particularly through secured segments such as home loans and Loan Against Property (LAP), as well as consumer banking and business banking for small and medium-sized enterprises (SMEs).
Kotak Mahindra Bank has experienced a 14% underperformance compared to the Nifty over the past 12 months. However, Citi analysts anticipate that the bank is poised for an acceleration in personal loan growth with improving delinquency trends expected in the upcoming quarters. Additionally, the analysts foresee a significant opportunity for the bank to aggressively launch credit card products once existing regulatory restrictions are lifted.
Citi's analysts have maintained their earnings estimates for Kotak Mahindra Bank, citing a medium-term growth assumption with relatively low beta. The revised price target of INR 2,070 assigns a 2.4x multiple to the bank's expected FY26 book value for its banking business. The upgrade to a 'Buy' rating is based on these factors, with the understanding that key risks include potential vulnerability of Net Interest Margins (NIM) in a rate cut environment and higher than anticipated stress in the Microfinance Institutions (MFI) and credit card segments.
The bank's credit cost expectations have been set higher at 70-80 basis points, which is factored into the current valuation. The upgrade by Citi underscores the bank's readiness to capitalize on easing regulatory constraints and its solid position in the lending market.
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