Goldman Sachs sees Kotak Mahindra Bank entering $100-bn club by FY27

Goldman Sachs has said that the market capitalisation (m-cap) of Kotak Mahindra Bank (Kotak Bank) can top the $100-billion mark by 2026-27 (FY27) since the private sector lender is “geared up for the next phase of transformation”.

In a note, the brokerage has upgraded the stock to ‘buy’, with a target price of Rs 2,135.

Shares of Kotak Bank rose 2.64 per cent on Wednesday to end at Rs 1,707, valuing the lender at $42.8 billion (Rs 3.4 trillion).

“The key debates have been the bank’s risk appetite and its ability to deliver sustainable growth by utilising excess capital and sweating its infrastructure to drive the return on equity higher. We believe the bank is well-positioned this cycle to put the capital to work, and successful execution of its retail asset strategy to drive m-cap to $100 billion by FY27. With these positives and with a 28 per cent upside to our 12-month target price, we upgrade it to ‘buy’ from ‘neutral’ and add the shares to our conviction list,” said Goldman Sachs analysts Rahul Jain and Hardik Shah in a note.

Currently, only two Indian companies (Reliance Industries and Tata Consultancy Services) have a m-cap of more than $100 billion.

HDFC Bank is the only domestic lender to achieve that milestone. However, its m-cap has slipped and is currently at $96.4 billion.

The brokerage is predicting the bank to log sharp growth in profitability over the next few years.

“We expect core operating profit to grow at a 22 per cent compound annual growth rate, or CAGR (versus less than 15 per cent CAGR in 2018-19 through 2021-22, or FY22) and net profit to grow at 18 per cent CAGR in FY22 through 2024-25E (21 per cent adjusted for provision reversal in FY22),” said the analyst duo.

The optimism stems from the bank’s beneficial position in a rising interest-rate environment, strong capital base, sophisticated digital platform, and best-in-class return on assets.

Over the past two years, shares of Kotak Bank have gained 26 per cent, underperforming the Bank Nifty Index which gained 55 per cent.

Disclosure: Entities controlled by the Kotak family have a significant holding in Business Standard Pvt Ltd