Kotak Bank Q4 Results Review: RBI Embargo Resolution, Mid-Management Stability Are Key

Kotak Mahindra Bank Ltd.'s fourth-quarter earnings stood out on many fronts, but the resolution of the Reserve Bank of India's embargo and stability in mid-management remain key things to watch, according to analysts.

The private lender's standalone net profit rose 17.6% year-on-year to Rs 4,133.30 crore in the quarter ended March, according to an exchange filing. Net interest income, or core income, rose 13.2% year-on-year to Rs 6,910 crore. Other income rose 36.2% year-on-year to Rs 2,978.29 crore.

The bank wrote back provisions worth Rs 157 crore on account of alternate investment funds, out of the Rs 190 crore made in Q3.

In its investor presentation, the bank explained that it wrote off Rs 1,455 crore worth of retail unsecured loans (fully provided). This was 4.2% of retail unsecured loans.

Here is what analysts had to say about Kotak Mahindra Bank's Q4 results:

• The loan mix continued to tilt toward higher-yielding segments, with the share of unsecured loans increasing to 11.8% compared to the previous quarter.

• The CASA ratio continued to decline to 45.5%, unlike peers that saw a marginal improvement.

• A sharp rise in non-interest income by 30% QoQ is due to higher than usual fee income and strong trading gains.

• A likely surge in IT investments may lead to no immediate moderation in the CI/opex metrics.

• Maintain 'market-perform' with a target price of Rs 1,650, implying a potential upside of 7%.

• Loan growth improved to 18% YoY, with some lift from the Sonata MFI merger.

• Expect growth to normalise around 17% CAGR over FY24–27 as M&A stays in base and growth in unsecured loans moderates.

• Net slippages rose sharply as in Q4, slippages were at 1.6% of past year loans and recovery upgrades were largely stable

• Expect credit costs to rise steadily over the next 2-3 years towards 0.6-0.7% of average loans due to a higher share of unsecured

• Opex growth may be higher over the next 6–12 months and may impact income from the credit card segment as investment in the tech and digital segments rises.

• After KVS Manian's exit, there is potential for some churn in mid-management.

• Maintain 'hold' with a price target of Rs 1,790, implying a potential downside of 9.1%.

• There are many one-offs, like interest on tax refund of Rs 140 crore, AIF reversal of Rs 160 crore against a provision, lumpy growth of 91% QoQ in distribution/syndication fees, and a tax credit of Rs 200 crore.

• Loan growth is driven by CV, SME and commercial, while ex-Sonata, micro-declined QoQ

• CEO expects a small impact of Rs 450 crore to profit before tax from the digital ban

• While the CEO talked about deepening customer relations, without branch/headcount additions, it would be difficult.

• Logically, Kotak's tech spends should be higher if one goes by the 811 growth and growing digital volumes; this requires more opex for acquisition and monitoring.

• Remain concerned about senior management exits over the past six months.

• The proportion of assets that reprice within a year, making them vulnerable in a peaking / falling rate cycle, is a key risk.

• Earnings remain sensitive to opex, especially tech spends.

• Maintain 'reduce' with a target price of Rs 1,530, implying a potential downside of 1%.

• Despite NIM tailing down, RoA has held up.

• Expect the bank to compound its balance sheet at a 16% CAGR over the next 2 years.

• Earnings are expected to compound at a 16–17% CAGR over the next two years, with upside potential driven by better opex controls.

• The bank's ActivMoney product saw sharp growth, with fund costs rising 78 basis points over the last four quarters.

• Raise FY25-26 EPS to 2.47–2.5%.

• Maintain 'overweight' with a price target of Rs 2,070, implying a potential upside of 33.8%.

• In the fierce competition for retail deposits, the bank could suffer from the slipping CASA ratio, the RBI embargo on digital customer sourcing, and slower branch expansion compared to peers.

• Ban on new card sourcing to hurt market share/revenue in the medium term.

• Trim FY25-27 growth estimates by 200 bps.

• Expect the RoA trajectory to slip to 1.9–2.3% and the RoE to slip to 13–14% on higher opex/provisions.

• Higher attrition and the bank's strategy to reduce provision buffers vs. peers amid rising asset quality noise remain key concerns.

• Maintain 'reduce' with a target price of Rs 1,625, implying a downside of 7.1%.

Shares of the bank rose as much as 4.29% to Rs 1,613.00 apiece, the highest level since April 30. It was trading 4.01% higher at Rs 1,608.75 apiece as of 9:26 a.m. This compares to a 0.35% advance in the NSE Nifty 50 Index.

The stock has declined 17.87% in last 12 months but have risen 15.66% on year-to-date basis. Total traded volume so far in the day stood at 7.0 times its 30-day average. The relative strength index was at 37.81.

Out of 43 analysts tracking the company, 25 maintain a 'buy' rating, 12 recommend a 'hold,' and six suggest a 'sell', according to Bloomberg data. The average 12-month consensus price target implies an upside of 17.9%.