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Investing.com - Investec (LON:INVP) downgraded Kotak Mahindra Bank (NSE:KTKM) Ltd. (NSE:KMB) from Buy to Hold and lowered its price target to INR2,275.00 from INR2,535.00, citing margin pressure and higher credit costs.
The bank reported Q1FY26 profit after tax of Rs33 billion, down 8% quarter-over-quarter and 6% below estimates, impacted by a 32 basis point quarterly decline in net interest margin to 4.65% and increased credit costs of 1.2% compared to 0.9% in the previous quarter.
Kotak Mahindra’s quarterly loan growth was primarily driven by lower-yield mortgage and wholesale segments, while the bank experienced a sharp 210 basis point quarterly drop in its CASA (current account savings account) ratio, contributing to margin compression that exceeded peer banks.
Net slippages increased to 1.3% from 0.9% in Q1FY25, led by higher microfinance institution and retail commercial vehicle slippages, along with softer recoveries, though management indicated that credit costs in microfinance have peaked despite elevated trends expected to persist in Q2.
Following the results, Investec cut its FY26/27e earnings per share estimates by 6%/7%, now projecting Kotak Mahindra to deliver return on assets of 1.9%/2% over FY26/27e, with standalone return on equity of 11-12%, while reducing its target multiple to 2.1x June-27E book value from 2.4x previously.
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