Kotak Mahindra Bank has come under the spotlight after reporting a 14% year-on-year decline in standalone net profit for the fourth quarter of FY25, raising questions among investors about the stock’s near-term prospects and long-term outlook.
Here’s a detailed analysis of the latest results, broker recommendations, and what investors should consider now.
Q4 Results: Profit Misses Estimates, Margins Under Pressure
For the March quarter, Kotak Mahindra Bank posted a standalone net profit of ₹3,552 crore, down from ₹4,133 crore a year earlier.
The decline was sharper than market expectations, primarily due to a significant rise in provisions and contingencies, which surged more than threefold to ₹909 crore.
This cautious stance on asset quality came even as gross non-performing assets (GNPA) improved marginally to 1.42% from 1.50% in the previous quarter, and net NPA stood at 0.31%.
Net interest income (NII) rose 4.5% year-on-year to ₹7,284 crore, but both profit and NII came in below analyst estimates.
The bank’s net interest margin (NIM) contracted to 4.97% from 5.28% a year ago, reflecting the impact of a large share of loans linked to external benchmarks and the lag in deposit rate adjustments in a declining interest rate environment.
Total deposits grew 15% year-on-year, and advances rose 13%, indicating steady business growth despite margin pressures.
Brokerages React: Mixed Ratings, Cautious Optimism
The disappointing profit numbers have prompted several brokerages to revise their ratings and price targets for Kotak Mahindra Bank. CLSA downgraded the stock to “hold” from “underperform,” while raising its price target to ₹2,225.
Nomura shifted its stance to “neutral” from “buy,” with a revised target of ₹2,200. Nuvama also cut its rating to “hold,” but increased its price target to ₹2,350, citing cautious optimism on asset quality and loan growth.
Bernstein maintained a “market-perform” rating with a target of ₹1,950, highlighting that deposit growth lags behind major peers like ICICI Bank and HDFC Bank.
Despite these downgrades, a majority of analysts still have a “buy” or “hold” rating, with 29 out of 44 analysts recommending a buy, 10 suggesting hold, and five advising sell. The consensus reflects a belief that while near-term challenges persist, the bank’s fundamentals remain intact.
Buy, Sell or Hold?
- Buy: Investors with a long-term horizon may consider accumulating the stock on dips, given Kotak Mahindra Bank’s strong capital position, improving asset quality, and robust deposit and loan growth. The bank’s conservative approach to provisioning and its ability to navigate regulatory challenges are positives.
- Hold: For existing shareholders, holding the stock is advisable as the worst of the provisioning cycle may be behind, and the bank is well-placed to benefit from a recovery in credit demand and easing margin pressures as interest rates stabilize.
- Sell: Short-term investors or those with a low risk appetite may consider trimming exposure, as earnings growth is likely to remain subdued in the near term due to margin compression and higher operating expenses.