Kotak Mahindra Bank's net interest margin stood at 4.54%, declining by 11 bps QoQ, primarily due to the full impact of June’s 50 bps repo rate cut and changes in the asset mix. Cost of funds reduced by 31 bps QoQ, benefiting from the savings rate cut to 2.5% and repricing of term deposits. This reduction was mainly attributed to the full impact of the savings account rate reduction and the re-pricing of maturing term deposits.
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Nirmal Bang Report
Kotak Mahindra Bank Ltd.’s Q2 FY26 performance was better than our expectation by 3% at the net interest income level but below our expectations at pre-provision operating profit/PAT level by 5.7%/9.6%. The bank reported a decline in standalone PAT by 0.9%/2.7% QoQ/YoY to Rs 32.5 billion, impacted by dividend from subsidiaries of Rs 4.49 billion in Q1 FY26.
Excluding this one-off, PAT grew 11% QoQ while the YoY decline was primarily driven by net interest margin compression and higher credit costs. Loan and deposit growth stood healthy at 15.8% and 14.6% YoY respectively. NIM declined by 11bps QoQ to 4.54%, which was better than our expectation of 20bps compression. Slippages declined from Rs 18.12 billion in Q1 FY26 to Rs 16.29 billion in Q2 FY26.
We have estimated an earnings CAGR of 6.1% over FY25-FY28E which results in RoA/RoE of 2.1%/12.4% in FY28E. We have valued the standalone business at 2.5x Sept 2027E ABV (same as earlier), which is at a discount of 34.5% to its five-year mean P/ABV of 3.8x.
Adding subsidiary value per share of Rs 598, we maintain our target price at Rs 2,550 (Rs 2,551 earlier).
We remain positive on Kotak Mahindra Bank due to it’s higher than industry loan growth and healthy RoAs of ~2% over FY25-FY28. We maintain a ‘Buy’ rating on Kotak Mahindra Bank.
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Also Read: Kotak Mahindra Bank Q2 Review: Brokerages Signal Mixed Performance; Strong Loan Growth, NIM Pressure
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