Mirae Asset Sharekhan has reiterated its bullish stance on Kotak Mahindra Bank (KMB) with a revised target price of Rs 2,500, reflecting a potential upside of approximately 17% from the current market price of Rs 2,143. The brokerage’s optimism stems from KMB’s ability to maintain robust profitability metrics, sustain a Return on Assets (RoA) above 2%, and capture incremental growth from a recovery in the unsecured lending space. Despite macroeconomic challenges and near-term yield compression, the bank's diversified loan book, stable asset quality, and strong digital push position it as a solid long-term compounder.

Loan Growth Outlook Strong Despite Recent Regulatory Constraints

KMB’s ability to outperform peers in loan growth during a phase impacted by RBI’s embargo underscores its resilience and diversified lending strategy. In 9MFY25, the bank compensated for the deceleration in unsecured lending by scaling up its secured and non-retail portfolios.

The unsecured retail mix, which had dipped to ~10% from 12% due to regulatory curbs, is expected to recover with the embargo lifted. The management targets raising this share to the mid-teens, supported by a rebound in personal loan (PL) and credit card (CC) segments.

Loan growth is expected to outpace nominal GDP by 1.5–2x**, with a broad-based expansion across segments excluding microfinance (MFI), where stress remains temporarily elevated.

Margin Outlook: Rate Pressures Offset by Rebound in High-Yield Loans

Net interest margins (NIMs) have faced compression—declining by nearly 35 basis points—due to a higher cost of funds and a temporary drop in high-yielding assets. However, this pressure is expected to moderate in FY26E.

The resumption of PL/CC disbursements and the strategic acquisition of a high-yielding PL portfolio from Standard Chartered Bank are expected to partially counterbalance the impact of declining benchmark rates.

With around 60% of KMB’s loan book linked to external benchmark rates, the anticipated shallow rate cut cycle in FY26 will impact yields. Yet, management expects NIMs to stabilize around 4.7%, supported by product mix and improving loan yields.

Asset Quality Remains Stable; Credit Costs to Peak in FY25

KMB’s credit quality metrics remain among the best in class. While some stress persists in the MFI and retail CV (LCV) segments, overall asset quality is stable.

Delinquencies in personal loans and credit cards have stabilized

Secured book quality remains strong

MFI slippages expected to peak over the next two quarters

Credit costs, which have trended upward in FY25, are projected to peak in Q4FY25, and decline in FY26 as stress pockets subside. The bank’s conservative provisioning and strong underwriting practices are expected to keep credit costs well-contained, thereby protecting profitability.

Cost Control and Operating Leverage to Support Profitability

Despite rising compliance and technology expenses, operating costs are expected to stay in check in FY26, driven by better productivity, digital scalability, and selective hiring. With EBITDA and net profit growing at a CAGR of 14–15% over FY23–27, KMB’s earnings trajectory remains robust.

The bank’s ability to improve cost efficiencies without sacrificing service delivery is a testament to its operating discipline, particularly as its Return on Equity (RoE) is forecasted to remain at 13%, even under conservative assumptions.

Valuation Still Reasonable Relative to Quality

At the current market price of Rs 2,143, KMB trades at 2.3x/2.1x its FY26E/FY27E core book value, and a P/E of 19.1x FY26E earnings. These valuations are slightly above Axis Bank and ICICI Bank, but justified given KMB’s superior RoA (2.1%) and consistent profitability profile.

The Sum-of-the-Parts (SOTP) valuation of Rs 2,500 includes:

Rs 1,860 for core banking

Rs 640 for subsidiaries like Kotak Prime, Kotak Securities, and Kotak Life Insurance

Sharekhan expects these subsidiaries, although still relatively small, to scale significantly and contribute meaningfully to consolidated earnings in the long run.

Digital Infrastructure and Strategic Appointments Enhance Long-Term Outlook

KMB continues to invest aggressively in technology, positioning itself to scale digital lending, streamline operations, and reduce manual overhead. Moreover, the appointment of Ashok Vaswani as MD & CEO, along with other senior leadership additions, signals strategic stability and governance continuity.

The bank’s network of 2,068 branches and 3,337 ATMs, combined with an increasing digital footprint, ensures it remains competitive in both urban and semi-urban markets. These investments are expected to yield long-term returns as India's banking landscape becomes increasingly digital-first.

Peer Comparison Highlights Competitive Edge

Compared to peers like Axis Bank and ICICI Bank, KMB stands out with:

Higher RoA (2.1% vs. 1.7% for Axis)

Superior credit quality

Strong retail liability franchise

Smoother deposit mobilization (CASA base)

While ICICI offers better RoE and lower P/E, KMB’s premium is justified by its capital efficiency, balanced risk profile, and strong governance framework.

Stock Levels and Investment View

Current Market Price (CMP): Rs 2,143

12-Month Target Price: Rs 2,500

Upside Potential: 16.7%

Support Levels: Rs 2,050 – Rs 2,100

Resistance Zone: Rs 2,250 – Rs 2,300

The stock has delivered 20.7% return over the past year and remains in a steady uptrend. Investors with a medium-to-long term horizon are advised to accumulate on dips, with strong potential for compounding returns.

Key Risks to Monitor

Despite the promising outlook, investors should track:

Prolonged stress in MFI and CV segments

Lower-than-expected loan growth recovery

Compression in margins if rate cuts are deeper

Volatility in retail liabilities growth

Bottomline for Investors: Kotak Mahindra Bank remains a premium play on India’s financial sector transformation. Its impeccable asset quality, digital adaptability, and high-margin business lines, combined with improving loan mix and cost discipline, make it a compelling candidate for portfolio allocation. With a clear runway for growth and earnings visibility, Sharekhan’s Rs 2,500 target appears well within reach.