Nuvama Institutional Equities has downgraded Kotak Mahindra Bank (KMB) to ‘Hold’, citing rich valuations, even as it raised the target price to ₹2,350 from ₹2,040. The stock currently trades at ₹2,180.10, having gained nearly 20% since Q3FY25 earnings.
KMB reported a mixed performance in Q4FY25, with a notable improvement in asset quality, as slippages declined for the second straight quarter and provision coverage ratio (PCR) rose from 73% to 78%. However, loan growth of 14% YoY (3% QoQ) and core NII growth of just 1% QoQ/8% YoY were both below expectations. The NII also missed consensus estimates by 2.5%, marking the lowest growth among large peers.
Core pre-provision operating profit (PPOP) was flat sequentially, weighed down by modest NIM performance, weak loan growth, and elevated opex due to a brand campaign. While other income surged sharply, growing 46% QoQ, cost pressures and a dip in calculated NIM (down 14 bps QoQ) added to concerns.
KMB continues to show strength in certain segments. Unsecured personal loans grew 17% QoQ, partly due to the acquisition of Standard Chartered’s portfolio. Consumer loans rose 17% YoY, while commercial loans grew 6% YoY. However, microfinance loans declined 19% QoQ, and corporate loan book dipped 4% QoQ.
Nuvama acknowledged that KMB is better placed on growth and NIMs compared to peers, thanks to a sharper reduction in fixed-rate savings accounts and a shorter loan tenor. Yet, given the recent stock rally and its premium valuation of 2.7x FY26E BV, the brokerage has opted to downgrade the stock to ‘Hold’ while still raising its EPS forecasts and target price.
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