Kotak Mahindra Bank Shares Plunge After Q4 Profit Decline

Kotak Mahindra Bank Shares Plunge After Q4 Profit Decline

Kotak Mahindra Bank (NSE: KOTAKBANK) saw its shares drop significantly on May 5, 2025, following the release of its fourth-quarter financial results, which revealed a 14% year-on-year decrease in net profit. The stock opened at ₹2,105.10, down 3.67% from the previous close of ₹2,185.20, and continued to face pressure throughout the trading day.

The bank reported a net profit of ₹3,552 crore for Q4 FY25, a decline attributed to a substantial increase in provisions. While net interest income (NII) rose by 4.5% to ₹7,284 crore, the overall market reaction was negative due to the earnings miss and the sharp rise in provisions, which jumped to ₹909 crore from ₹300 crore in the same quarter last year.

Despite the profit miss, the bank's net interest margin (NIM) for the quarter was reported at 4.97%, although this was a decrease from 5.28% year-on-year. Analysts noted that while core banking operations remained stable, the increase in provisions raised concerns regarding loan growth sustainability.

Market analysts were quick to respond to the earnings report, with multiple brokerages downgrading their ratings on Kotak Mahindra Bank's stock. Nomura India downgraded the bank to a "Neutral" rating with a revised target price of ₹2,200, down from ₹2,110. They cited the bank's high valuation multiples following a recent rally as limiting upside potential. Similarly, Nirmal Bang downgraded the stock from "Buy" to "Hold," pointing to a slowdown in loan growth as a significant concern.

Nuvama maintained a "Hold" rating but raised its target price to ₹2,350 from ₹2,040, while Elara Capital revised its rating to "Accumulate" from "Buy," adjusting its target price to ₹2,330 from ₹2,100. They noted that despite a soft Q4 performance, Kotak Mahindra Bank's long-term prospects remain positive due to strong asset quality trends.

On the asset quality front, the bank reported gross non-performing assets (GNPA) at 1.42% and net non-performing assets (NNPA) at 0.31%, showing slight improvement from the previous year's figures of 1.39% and 0.34%, respectively.

Investor sentiment was further dampened as Kotak Mahindra Bank's shares fell over 5% on the day, making it one of the biggest drags on both the Nifty 50 and the Nifty Bank index. The stock is currently trading at ₹2,077.3, reflecting a significant decline from earlier highs.

In terms of broader market trends, the Indian benchmark indices opened positively on May 5, with the Sensex above 80,800 and the Nifty above 24,400, despite mixed signals from international markets. Most Asian markets were closed due to the Vesak Day holiday, and U.S. futures were trading lower after a strong performance on Friday.

As the market digests Kotak Mahindra Bank's earnings report, analysts suggest that investors may look for further commentary from the bank's management regarding credit growth and NIM stabilization. The overall bearish sentiment surrounding the stock highlights the cautious approach many investors are taking in light of the current economic environment.

In summary, Kotak Mahindra Bank's recent quarterly results have raised concerns among investors and analysts alike, leading to a series of downgrades and a significant drop in share price. The bank's ability to manage provisions and maintain loan growth will be critical as it navigates through the challenges ahead.