Why Are Kotak Mahindra Shares Plunging Despite Strong Q1 Results?

Kotak Mahindra‘s share price plunged over 3.5% in early trade on Monday even though the bank delivered strong June-quarter results.

What Happened? The private lender reported a robust net profit of ₹3,452 crore in the first quarter of FY24, marking a 67% increase from the ₹2,071 crore profit recorded in Q1FY23. On a consolidated basis, the bank’s net profit saw a year-on-year rise of 50.62% to ₹4,150.19 crore.

During the April-June quarter, the net interest income reached ₹6,234 crore from ₹4,697 crore a year ago. Net interest margin also saw a year-on-year rise of 65 basis points to 5.57% in the first quarter, though it dipped 18 basis points from the preceding quarter. The bank’s management maintained their guidance of a 5% NIM growth.

However, despite the healthy earnings, the bank’s slippages rose sharply to ₹1,205 crore in Q1FY24, accounting for 1.5% of loans, up from around 1.0% in the last two quarters. Loan growth remained reasonable at 17.3% year-on-year, but the share of unsecured loans, including MFI, increased to 10.7%, up from 7.9% a year ago.

What Brokerages Are Saying: Motilal Oswal highlighted the bank’s steady revenue growth and stable asset quality, saying NIM contraction was on expected lines due to rising deposit costs. The brokerage raised its earnings estimates for FY24/25 and held its “neutral” call with a target price of ₹2,170 per share.

ICICI Securities also noted an increase in slippages and credit costs, maintaining a “hold” rating while raising the target price to ₹2,000 per share from ₹1,900. Nuvama Institutional Equities noted a narrow on core pre-provisions operating profit, also retaining a “hold” rating with an unchanged target price of ₹2,140 per share.

Price Action: Kotak’s share price was down 3.54% to 1,900.55 in morning trade on Monday.

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