Evaluation bar: white shows the price as a share of the target (84.5%); dark is the upside left.

The Levels: Two Clocks, One Target

The Quarter: Profit Up, Margin Down

Kotak Mahindra Bank’s standalone profit after tax climbed 29.5% year on year and 2.2% sequentially to Rs 4,212 crore. Return on assets eased to 1.92% from 2.14% as fresh liquidity swelled the balance sheet.

Pre-provision profit grew 21.1% and provisions fell 15.2%, lifting pre-tax profit by 29.1%.

The Sacrifice: Where 22 Basis Points Went

The margin decline was deliberate. Of the 22 basis-point drop, 15 basis points came from the FCNR(B) deposits and the loans made against them; day count and repayment of inter-bank participation certificates explain the rest. Management says the core margin was unchanged from the first quarter.

The brokerage models a further dip of about 9 basis points in the third quarter, when FCNR costs run for a full three months, before the margin recovers to about 4.2% as the liquidity is lent out. About 60% of the loan book is linked to the repo rate, so the recent 25 basis-point hike should flow through in the third quarter and fully by the fourth. Each 5 basis points of margin moves FY28 profit by about 1.7%.

The Board: How Rs 55,344 Crore Was Deployed

Kotak raised about Rs 55,344 crore of FCNR(B) deposits under the Reserve Bank of India’s swap window. The money funded Rs 16,110 crore of loans through international branches, the Rs 8,915 crore transfer of a loan book from Kotak Mahindra Investments (KMIL) and Rs 9,800 crore of net IBPC repayment. The balance sits as liquidity, to be lent to customers over the next few quarters.

The Advance: Loan Growth Across the Files

Net advances grew 24.8% year on year and 12.7% sequentially to Rs 5,77,295 crore. Excluding FCNR-backed loans and the KMIL book, growth was a still-healthy 19% year on year and 8% sequentially. Deposits rose 23.2%, with CASA at 41.8% excluding FCNR(B).

Unsecured retail added Rs 1,730 crore, against Rs 707 crore in the first quarter. The brokerage forecasts advances growth of 27.0% in FY27, or about 22% excluding the inorganic items, and 17.5% in FY28.

The Defence: Asset Quality and Costs Hold Firm

Specific credit cost fell to 0.35% from 0.46% in the first quarter and 0.79% a year ago, and the slippage ratio eased to 0.85% from 1.03%. Gross NPAs slipped to Rs 6,081 crore as fresh slippages of Rs 1,230 crore were more than offset by Rs 642 crore of upgrades and recoveries and Rs 629 crore of write-offs. One soft spot: SMA-2 loans nearly doubled to Rs 468 crore from Rs 249 crore, which the house says it will track.

Operating expenses rose 13.8%, but excluding about Rs 116 crore of one-time costs on international branch borrowings they grew 11% and were flat sequentially. Cost-to-income improved to 45.2%, a nine-quarter low, from 46.8% a year ago. Fees grew 21.2%, helped by a one-time FCNR processing fee of about Rs 158 crore. Capital adequacy stood at 21.9%, with CET1 at 21.4%.

The Endgame: Valuation and Estimates

Deven Choksey values the standalone bank at 2.3 times its September 2028 estimated adjusted book value of Rs 185.7 a share and adds Rs 82 a share for subsidiaries, which earned Rs 1,450 crore in the quarter, or 26% of consolidated profit. The stock trades at 2.5 times FY28 book and 20.4 times FY28 earnings; excluding subsidiaries, the core bank trades at about 2.0 times book.

The house expects profit to compound at about 22% a year from FY26 to FY28, with return on equity rising from 12.2% to 12.7% and return on assets near 2.1%. Separately, the Reserve Bank has approved Anup Kumar Saha as managing director and chief executive for three years from Jan. 1, 2027, succeeding Ashok Vaswani.

The Opening Book: How the Call Has Moved

Threats on the Board

Levels at a glance: Kotak Mahindra Bank · Deven Choksey Research · BUY (from Accumulate) · CMP Rs 430 · Target Rs 509 · Upside ~18% · 52-week Rs 345 - 453 · Basis 2.3x Sep-28E ABV + Rs 82 subsidiaries