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Kotak Bank will be a growth leader as CLSA stamps a Buy
March 28, 2023
Global brokerage house CLSA has upgraded Kotak Mahindra Bank stock from “outperform” to “buy” tag, citing that the private lender’s risk-reward is getting favourable. The stock was trading a almost percent higher in the afternoon trade on March 27.
CLSA analysts have left the target price unchanged at Rs 2,080 a share, implying an upside of 23 percent. Its valuation premium to HDFC Bank and ICICI Bank is down 10-20 percent. “Discounting the CEO transition, some premium to peers is justified,” they said.
With just 2 percent market share and a formidable banking franchise, they expect Kotak to be the bank leader among large banks.
“Kotak Mahindra Bank’s liability granularity has also improved with the low cost of fund gaps,” the report added. Loan growth has picked up over the last 18 months to +20 percent driven by a higher willingness of management to lend, which allows Kotak to compete in segments like mortgages.
In Q3 FY23, Kotak Mahindra Bank Ltd beat Street estimates with a 31 percent growth in net profit at Rs 2,792 crore. The bank’s net interest income surged 30 percent to Rs 5,653 crore, on the back of a year-on-year growth of 23 percent in loans and a jump in net interest margin to 5.47 percent from 4.62 percent.
That said, CLSA believes that CEO transition remains a key overhang for the bank but clarity should come over the next 3-4 months. “Our analysis suggests an IDBI Bank takeover (at a 25 percent premium) would be 30 percent book accretive and 15-18 percent earnings accretive,” it noted.
CLSA analysts have left the target price unchanged at Rs 2,080 a share, implying an upside of 23 percent. Its valuation premium to HDFC Bank and ICICI Bank is down 10-20 percent. “Discounting the CEO transition, some premium to peers is justified,” they said.
With just 2 percent market share and a formidable banking franchise, they expect Kotak to be the bank leader among large banks.
“Kotak Mahindra Bank’s liability granularity has also improved with the low cost of fund gaps,” the report added. Loan growth has picked up over the last 18 months to +20 percent driven by a higher willingness of management to lend, which allows Kotak to compete in segments like mortgages.
In Q3 FY23, Kotak Mahindra Bank Ltd beat Street estimates with a 31 percent growth in net profit at Rs 2,792 crore. The bank’s net interest income surged 30 percent to Rs 5,653 crore, on the back of a year-on-year growth of 23 percent in loans and a jump in net interest margin to 5.47 percent from 4.62 percent.
That said, CLSA believes that CEO transition remains a key overhang for the bank but clarity should come over the next 3-4 months. “Our analysis suggests an IDBI Bank takeover (at a 25 percent premium) would be 30 percent book accretive and 15-18 percent earnings accretive,” it noted.
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