Kotak Bank Q1 Results Review: Growth Sustainability Is Critical Given Soft Core Profitability
The bank's earnings were mixed vis-a-vis market expectations and led by gains in other non-fund based income
Kotak Mahindra Bank Ltd.’s first-quarter earnings were mixed, mainly driven by gains in other non-fund-based income, according to analysts.
The private sector lender’s net profit rose 66.6% year-on-year to Rs 3,452 crore in the quarter ended June, according to an exchange filing. That is higher than the Bloomberg estimate of Rs 3,219.5 crore. Net interest income increased 32.7% to Rs 6,234 crore from a year ago.
The bank’s asset quality showed mixed signs. The gross non-performing asset ratio fell sequentially to 1.77%. However, the net NPA ratio rose slightly to 0.4% quarter-on-quarter, compared with 0.37% as of March 31. Provisions rose sharply to Rs 364 crore year-on-year from Rs 23 crore in Q1 FY23.
The bank’s management stated that since asset growth has been relatively high, CASA takes time to come up to that level. It expects an inching up once growth rates stabilise to relatively average levels.
Here is what analysts said about Kotak Mahindra Bank’s Q1 FY24 results:
Morgan Stanley:
The bank’s quarter earnings were seen on the back of deposit growth, which rose 6% quarter-on-quarter and 22% year-on-year.
Strong trends across banking, NBFC, and capital market businesses.
Non-staff costs continue to moderate, offset by higher-than-expected growth in staff costs. This is likely driven by higher retirement-related costs.
Maintain ‘equal-weight’ with a revised target price of Rs 2,250.
Elara Capital
The bank’s earnings were a ‘mixed bag’ on the back of relatively soft-core profitability.
Q1FY24 fell short of expectations, with loan growth at 2.7% quarter-on-quarter. Growth sustainability is crucial, given the current rate dynamics and the bank's low-risk threshold.
Asset quality stays a non-issue, but normalising trends in credit costs are expected.
The bank's inability to demonstrate growth in retail deposits despite a higher CASA ratio and strong capital base, points to a weaker liability franchise than peers and would be a key monitorable.
Maintain ‘accumulate’ with a revised target price of Rs 2,103.
Motilal Oswal
The bank’s standalone PAT increased 67% year-on-year, driven by higher treasury gains and dividend income of Rs 3 billion from subs.
The CASA mix moderated quarter-on-quarter, primarily due to a shift in saving account deposits towards the high-yielding ActivMoney product launched by the bank.
The bank reported healthy sequential trends in home loans, personal loans, business loans, consumer durable loans, credit cards, and MFI.
A higher ROA of 2.8% in Q1 FY24 was mainly due to one-time non-interest income. It is expected to moderate in the next quarter.
Maintain ‘neutral’ with a target price of Rs 2,170, implying an upside of 10%.
Phillip Capital
Treasury gains aided the over PPoP growth of the bank.
Cost-to-income ratios may witness near-term challenges as the bank is on a journey to add scale to its business.
NII increased 32.7% year-on-year, above expectations, due to an increase in loan yield, owing to a change in loan mix.
Attrition costs were seen rising during the quarter as this was a full year of working after Covid.
Maintain ‘buy’ with a revised target price of Rs 2,200.
