Shares of Kotak Mahindra Bank declined between 6% and 7% on July 28, 2025, after a weaker-than-expected Q1 FY26 earnings report
🔍 Financial Performance Highlights
- Standalone net profit dropped ~7% YoY to ₹3,282 crore, missing consensus estimates (adjusted for one-time gains)
- Net Interest Income (NII) rose 6% YoY to ₹7,259 crore, supported by 14% loan growth, while Net Interest Margin (NIM) compressed to 4.65% from 5.02%, reflecting funding cost pressures
- Provisions surged over 100% YoY, with credit costs rising to approximately 1.2% from ~0.9%, as fresh slippages climbed in microfinance, retail CV, and KCC segments
🧾 Asset Quality & Market Reaction
- Gross NPA rose to 1.48% vs. 1.39% YoY, while NNPA remained at ~0.34%. The bank’s PCR stayed near 77%
- As a result, brokerages updated their outlooks, with target prices cut and conservative recommendations. Some brokers forecast share price may fall toward ₹1,950
- Analysts cited margin erosion, elevated credit costs, and deteriorating asset quality as key concerns overshadowing decent loan growth and robust deposit momentum
📋 Quick Overview
| Metric | Q1 FY26 Result |
|---|---|
| Share Price Drop | 6–7% on July 28, 2025 |
| Standalone PAT | ₹3,282 crore (−7% YoY) |
| Net Interest Income (NII) | ₹7,259 crore (+6%) |
| Net Interest Margin (NIM) | 4.65% (down ~32 bps YoY) |
| Provisions/Credit Costs | 1.2% (~₹1,208 crore) |
| Gross NPA | 1.48% (vs 1.39%) |
| Analyst Revision Targets | ₹1,950–2,340 |
🧭 Why It Matters
- Earnings Miss: The slip in core profit—despite strong top-line growth—raises questions about Kotak’s pricing power and rising cost of funds amidst falling repo rates.
- Asset Quality Warning Signs: Elevated provisioning and slippage in high-risk unsecured segments suggest further strain ahead, unlike peers with more stable credit metrics.
- Valuation Re-rating Risk: With brokerage revisions and reduced near-term growth prospects, Kotak’s premium valuations may come under pressure relative to peers.
🔭 Outlook
While Kotak Mahindra Bank continues to report healthy loan/deposit growth and sound capital ratios, the immediate focus will be on how it manages credit costs and margin recovery in the coming quarters. Analysts expect gradual stabilization in margins and microfinance stress by Q3 FY26—but investor sentiment may remain cautious until results show traction.
