Emkay Lowers Kotak Mahindra Bank Target to Rs 2,050 - Here's Why

Kotak Mahindra Bank (KMB) reported a solid Q2FY26 performance with industry-beating credit growth, though profitability was marred by margin compression and mark-to-market (MTM) losses. Emkay Research, while raising the target price slightly by 5% to ₹2,050 (from ₹1,950), retained a ‘Reduce’ rating due to what it called “rich valuations for sub-optimal return ratios.”

Strong Loan Growth but NIM Slips
KMB’s credit book grew 16% year-on-year and 4% sequentially, with corporate lending doing most of the heavy lifting, up 17.6% YoY and 6% QoQ. Retail and SME segments also recorded double-digit growth. However, the bank’s net interest margin (NIM) fell by 11 basis points (bps) quarter-on-quarter to 4.5%, largely due to lower investment yields.

Retail Stress Eases; CV Loans a Concern
The quarter also saw stress in unsecured retail portfolios start to ease. Gross slippages moderated to ₹16.3 billion (1.6% of loans) from ₹18 billion in Q1, helping improve the gross NPA ratio by 9 bps to 1.4%.

“The decline in slippages and credit costs was mainly driven by the cards and microfinance segments,” Emkay noted, adding that credit costs in credit cards and PLs are expected to decline further in the second half of FY26. However, the commercial vehicle (CV) and construction equipment (CE) segments remain under pressure, warranting caution.

Management Outlook: Cautious on Unsecured Growth
In its post-result commentary, the bank indicated plans to resume growth in its unsecured book, particularly in credit cards and microfinance, as the environment stabilizes. The Solitaire card has been gaining traction since the embargo was lifted, and management expects improved performance in coming quarters.

Kotak also added 44 new branches in Q2, while deposit repricing and reduced bulk deposit renewals are expected to gradually ease funding costs over the next few quarters.

Earnings Miss and Revised Estimates
Kotak’s net profit stood at ₹32.5 billion, missing Emkay’s estimate by 4% due to lower treasury income and elevated provisioning. Return on Assets (RoA) stood at 1.9%, with expectations to normalize to 2% by FY27–28 as margins and loan loss provisions stabilize.

“Despite healthy loan growth, profitability remains under strain due to compression in NIMs and higher LLPs. We continue to see only moderate returns with RoE at 11–12%,” the report added.
 

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Kotak Mahindra Bank Share Price Target 
Emkay values the standalone bank at 1.8x Sep-27E Adjusted Book Value (ABV), rolling forward subsidiary valuations to ₹690 per share. The revised target price of ₹2,050 implies a 6.5% downside from the current market price of ₹2,193.
The brokerage emphasized that while Kotak remains fundamentally strong, the stock’s valuation premium limits upside potential in the near term.

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