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On Tuesday, HSBC upgraded Kotak Mahindra Bank Ltd. (KMB:IN) stock, raising its rating from Hold to Buy and increasing the price target to INR2,130 from INR1,740. The upgrade reflects the bank's robust loan growth expectations, which at 18-20% compound annual growth rate (CAGR), stand out among large public sector banks.
The bank's focus on expanding in higher-yielding segments is expected to support net interest margins (NIMs). HSBC's revised outlook suggests a favorable NIM forecast due to the 'higher for longer' interest rate expectations and minimal residual repricing of deposits. This has led to an upward revision of the bank's net interest margin estimates.
Consequently, HSBC has increased its earnings per share (EPS) estimates for Kotak Mahindra Bank for the financial years 2025 to 2027 by 5-9%. The adjustment factors in the potential impacts of the Reserve Bank of India's (RBI) ban, which the analyst believes has already been accounted for in the bank's current valuation.
The new price target is based on a target multiple of 2.5 times the bank's forecasted book value per share for the financial year 2026. This revision in the target multiple is a key driver in the substantial increase in the price target for Kotak Mahindra Bank's shares. The analyst's positive stance on the stock is underpinned by the bank's strong growth prospects and favorable NIM outlook.
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