Kotak Mahindra Bank market cap to hit $100bn by FY27, says Goldman Sachs, upgrades stock rating, target price

Kotak Mahindra Bank stock has been upgraded by analysts at Goldman Sachs to a ‘Buy’ rating from the ‘Neutral’ tag earlier.

In a report, Goldman Sachs said that Kotak Mahindra Bank is geared for the next transformation phase. (Image: REUTERS)

Kotak Mahindra Bank stock has been upgraded by analysts at Goldman Sachs to a ‘Buy’ rating from the ‘Neutral’ tag earlier. In a report, Goldman Sachs said that Kotak Mahindra Bank is geared for the next transformation phase as the brokerage firm increased the target price pinned on the stock. “We believe Kotak Mahindra Bank is well-positioned this cycle to put capital to work, and successful execution of its retail asset strategy to drive the MCap to $100 billion by FY27E,” analysts said. Kotak Mahindra Bank stock is down 6% so far this year to trade at Rs 1,711 per share. 

Goldman Sachs has turned positive on the stock and added it to the conviction list based on its beneficial position in a rising interest rate environment, sustainable loan growth best in class PPOP-ROA, and limited dilution risk. The brokerage firm added that, in their view, Kotak Mahindra Bank is positioned for an earnings upgrade cycle. 

$100 billion market capitalization soon?

Kotak Mahindra Bank is estimated to deliver a +20% CAGR for net profit, driven by its strong franchise, low-cost deposits which translated to a best-in-class cost of deposits, significant investments in distribution network, among other factors. “We believe Kotak Bank could join the ranks of banks with US$100bn in market cap by FY27E as this cycle has all the factors in place for it to deliver sustainable and strong volumes and operating profit growth as it puts its excess capital to work,” Goldman Sachs said. 

The private sector lender currently has a market capitalisation of around $42 billion. “We raise our earnings estimates by c.7%/13%/13% for FY23E/FY24E/FY25E, mainly driven by higher NIMs as well as better operating leverage as discussed above,” the report added. 

Liability franchise gaining strength

Analysts believe Kotak Mahindra Bank’s liability franchise has been scaled up in recent years with a strong CASA ratio and retail deposits. “KTKM has strengthened its liability franchise particularly the current account franchise which has grown at an 18.5% CAGR over FY19-22 (to c.21% of deposits vs c.15% for PVT banks) compared to an average 15% CAGR for PVT banks. As a result, the cost of funds has consistently declined to levels below the larger banks,” they said. This is believed to help Kotak Mahindra Bank improve its rate offering and accelerate market share gains, particularly in the savings deposit.

Market share accelerating

Kotak Mahindra Bank has gained market share specifically in savings and current account deposits by 30bps and 40bps, respectively over the last three years. “We believe the bank still has scope to accelerate the market share particularly in savings deposit as it has the scope to offer higher savings deposit and retain customers,” the report said. Within retail, Kotak Mahindra Bank has gained market share in mortgage loans between FY19-22 by 70bps to 2.8%. 

Further, the lender has been investing in technological upgrades of its core systems as well as ramping up digital offerings. This could provide a significant boost to lending business, according to Goldman Sachs. 

Target price upgraded

Kotak Mahindra Bank’s target price has been increased to Rs 2,135, from Rs 1,984 apiece earlier. This translated to an upside of 25% from Wednesday’s trading price. “Kotak bank has underperformed the Nifty Bank Index over the last 1 month by 6% and trades at an avg. discount of 30% to rich-valuation stocks such as Bajaj Finance/SBI Card,” analysts said. The stock has seen a valuation de-rating over the last 2yrs and is now trading at c22x FY23E standalone EPS (19X FY24E EPS) and 2.7X FY23E standalone BVPS – 8% away from mean valuations, according to analysts. 

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