The stock of Kotak Mahindra Bank was the biggest gainer in the benchmark Nifty 50 index on Wednesday. The scrip hit a fresh lifetime high of Rs 1,256.85 on Wednesday following a statement by the bank’s managing director, Uday Kotak, after Q4 results, that he expects a 20% loan growth in the current fiscal (FY19). The stock, which has clocked gains in the previous five sessions, added another 3.8% on Wednesday — a day when the benchmark Nifty 50 pared 21.30 points or 0.20% to end at 10,718.05.
The stock has also climbed in the ranking of banks by market capitalisation following investors turning their backs on ICICI Bank and Axis Bank, following reports of corporate misgovernance. State-owned banks too have fallen out of favour for investors since revelations of several frauds by their corporate borrowers came to light, especially the Nirav Modi scam that ensnared Punjab National Bank.
Last month, Kotak Mahindra Bank overtook the country’s largest public sector lender, State Bank of India, to became the second-biggest lender by market capitalisation, behind only HDFC Bank. The Kotak stock has gained nearly 25% since the beginning of 2018, adding about Rs 47,429 crore in market capitalisation, which, interestingly, is more the entire market capitalisation of Bank of Baroda (Rs 38,175 crore) and Punjab National Bank (Rs 25,618 crore). What’s more, four Nifty 50 companies — HPCL, UPL, Lupin and Dr. Reddy’s Laboratories — have a market capitalisation less than what the stock of Kotak Mahindra Bank added in this year alone.
Notably, brokerages revised their ratings on the stock after the Mumbai-based lender reported a 15% rise in its March quarter earnings. The report card reflected robust performance across business segments. Deutsche Bank raised its target price for the stock from Rs 1,280 to Rs 1,370. It observed “Quality core earnings; insurance disclosure surprises positively.” Other brokerages that raised target price on the stock include Morgan Stanley, Citi and Credit Suisse.
The rise in valuation of Kotak Mahindra Bank is not without legs. Over the last five years through FY18, the loan book of Kotak Mahindra Bank has grown at a CAGR of 28.5%, higher than its largest peer HDFC Bank which saw loans grow at 22.4% during the same period.
Post Q4 results, Kotak said the bank is on track to meet its target of doubling its customer base between March 2017 and September 2018, with its digital product 811 contributing to a bulk of it. At present, it has over 13 million customers.
Edelweiss which maintained its buy rating on the stock said, “Robust franchise, limited stress baggage, strong capital position and digital initiatives equip the bank to cash in on growth opportunities”.
As of Wednesday, 75.7% of the 37 analysts that track Kotak Mahindra Bank had a buy recommendation on the stock, with Morgan Stanley having a one year price target of Rs 1,435 per share, compared to the closing price of Rs 1,256.85.