The share price of Kotak Mahindra Bank jumped more than 9 percent on Tuesday after the lender beat analysts' estimates to report a 27 percent YoY rise in net profit at Rs 2,184.5 crore on the back on lower provisions. It had posted a profit of Rs 1,724.48 crore in the same period last year.
The sentiment was also lifted as brokerages remained bullish on the stock after Q2 earnings. The stock rose as much as 9.7 percent to the day's high of Rs 1,553.90 per share on the BSE.
Kotak Mahindra Bank has been the top-performing stock on the Nifty Bank index in the last 1 month, up 22 percent.
Kotak Mahindra Bank's slippages in Q2 were at Rs 264 crore versus Rs 796 crore in Q1 and provisions were at Rs 368.6 crore versus Rs 963 crore, QoQ and versus 407.9 crore, YoY.
Net Interest Income (NII) in Q2FY21 increased 17 percent to Rs 3,913 crore from Rs 3,350 crore, YoY. Net Interest Margin (NIM) during the quarter under preview was at 4.52 percent. Operating profit increased by 31 percent to Rs 3,297 crore from Rs 2,509 crore in the year-ago period.
On the asset quality front, gross non-performing assets (NPA) during Q2FY21 fell 5 percent to Rs 5,335.95 crore from Rs 5,619.33 crore in Q1FY21. Net NPA declined 26.7 percent to Rs 1,303.78 crore from Rs 1,777.10 crore, QoQ.
Brokerages were positive as the bank beat all estimates and reported strong asset quality.
CLSA maintained an 'outperform' rating on the stock and has raised its target to Rs 1,600 per share from Rs 1,400 earlier. It also increased its earnings by 19-26 percent for FY21-23.
"Management indicated collections in many segments are approaching pre-Covid-19 levels with overall collections in the mid-90s. After having built a best-in-class liability franchise, the bank is now looking to enhance its franchise on the asset side which should be a big positive as the bank has lagged peers on growth," the brokerage said in a note.
Jefferies also retained a 'buy' call on the stock with a target at Rs 1,700 per share. It said that comfort on asset quality will reflect in confidence to grow loans and raised earnings forecasts to factor lower provisioning and better topline growth.
"With increased comfort on asset quality, management is looking to push growth as well aided by its deposit growth and potential to reallocate liquid assets to loans. This will provide better momentum to topline and fees. The management is also looking to accelerate investment in customer acquisition on both lending and deposit side," stated Jefferies in an earnings review report.
Motilal Oswal also said that the lender reported a strong quarter, with lower provisions and higher treasury income driving earnings. The bank continues to report steady progress in building a strong liability franchise, with the CASA ratio improving further to 57 percent, it further noted.
"Loan growth remains flattish as the bank remain cautious in a weak macro environment, however, a strengthening liability franchise would improve the bank's competitive positioning and aid asset growth," MOSL report added.It upgraded the rating to 'buy' after 10 quarters and revised the target price to Rs 1,650.