Kotak Mahindra Bank shares dive 7% as Q2 earnings disappoint, analysts cut target price

Shares of Kotak Mahindra Bank, one of India's leading private sector banks, fell 7.2% to ₹1,735 apiece during intraday trading on Monday, October 21. This decline followed the release of the bank's September quarter numbers (Q2FY25), which missed Street estimates and prompted some brokerage firms to lower their target prices on the stock.

Global brokerage firm Phillip Capital downgraded the rating on the stock from 'buy' to ‘neutral’ and reduced its target price from ₹2,010 to ₹1,940. It said the bank is experiencing stress in its unsecured portfolio, which it expects to continue for several more quarters.

It believes Kotak Mahindra Bank will be most affected by margin declines during the interest rate reversal phase, forecasting muted earnings growth due to pressure on net interest margins (NIM) and elevated credit costs.

Systematix Institutional Equities also revised its target price for the stock, lowering it from ₹2,090 to ₹2,010 while maintaining a 'buy' rating. It estimates credit costs in the credit card, microfinance institution (MFI), and other portfolios to be 4%, 5%, and 0.4% for FY26, and 4%, 3%, and 0.4% for FY27, respectively, leading to earnings cut of approximately 5% for FY25-27.

It values the standalone bank at 2.3x (down from 2.4x) the September 2026 price-to-adjusted book value (P/ABV), expecting an average return on assets (RoA) and return on equity (RoE) of 2.1% and 13.2%, compared to earlier projections of 2.2% and 13.5%.

Investec has maintained its 'buy' rating on the stock but has reduced its target price from ₹2,300 to ₹2,185. Meanwhile, Motilal Oswal continues to hold its "neutral" rating with a target price of ₹1,950. It noted that the bank is navigating the limitations imposed by regulators effectively, and the potential lifting of the ban would further enhance its operating performance.

Goldman Sachs retains its positive outlook on the stock, maintaining a 'buy' rating for a target price of ₹2,286 apiece.

Earnings snapshot

The bank reported a lower-than-expected 5% increase in profit for the July-September period at ₹3,344 crore, affected by higher loan provisions and shrinking lending margins. Provisions and contingencies, which are funds allocated for potential bad loans, surged nearly 80% to ₹660 crore during the quarter.

Net Interest Income (NII) met expectations at ₹7,020 crore, reflecting an 11.5% year-over-year increase. However, the Net Interest Margin (NIM) declined to 4.9%, down 11 basis points quarter-over-quarter, due to a reduced share of higher-yielding unsecured loans, the full-quarter impact of regulatory constraints, and increased slippages.

Analysts noted that the RBI's sanctions on credit card issuance and new customer onboarding via digital channels have negatively impacted the growth of high-yielding unsecured assets. They expect the pressure on NIM to continue, driven by moderate growth in the unsecured segment and the effects of deposit re-pricing. 

On the asset quality front, the Gross Non-Performing Assets (GNPA) ratio increased to 1.49%, up 10 basis points quarter-over-quarter, while the Net Non-Performing Assets (NNPA) ratio rose by 8 basis points to 0.43%. Slippages for the quarter came in at ₹1870 crore, reflecting a ratio of 1.92% compared to 1.44% in Q1. Restructured loans stood at 0.06%, amounting to ₹240 crore.

Meanwhile, the bank entered into an agreement to acquire the personal loan book of Standard Chartered Bank ( ₹4100 crore) to further fortify its position in the retail credit market. The acquisition is likely to be completed in the next three months, subject to regulatory/other approvals.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.