Kotak Mahindra and Jyothy Labs in Focus this Week

This week the two hot stocks, one from the banking sector and another from the FMCG sector, have shown great upside potential with a strong financial position. First is Kotak Mahindra Bank and Second is Jyothy Labs. In this blog, we’ll go through all the key details of these two stock recommendations.

Kotak Mahindra Bank Limited

Kotak Mahindra Bank’s CMP was ₹1905.95 (as on September 20, 2024) and its target price is set at ₹2,237 with an upside potential of 17%.

Investment Rationale

• Kotak Mahindra Bank has a national footprint of 1,965 branches and 3,279 ATMs (incl. Cash recyclers), and branches in GIFT City and DIFC (Dubai). The bank added 17 branches and reduced 12 ATMs in the quarter ended June 2024.
• The business level of the bank increased 17% YoY to ₹8,37,375 crore at end June 2024. The deposits moved up by 16% to ₹4,47,418 crore, while advances increased 19% to ₹3,89,957 crore at end June 2024.
• The bank has maintained stable asset quality in the quarter ended June 2024. GNPA ratio was nearly steady at 1.39% and the NNPA ratio to 0.35% at end June 2024.
• Capital Adequacy ratio under Basel III including profits stood at 22.40% with Tier I of 21.30% at end June 2024.
• Its net interest income (NII) grew by 10% to ₹6,842 crore in Q1 FY25 as against ₹6,234 crore for Q1 FY24. The Net Interest Margin (NIM) moderated to 5.02% for Q1 FY25 from 5.57% a year ago.

• Return on Assets (ROA) for Q1 FY25 (annualized) was 4.22% (2.81% for Q1 FY24). ROA for Q1 FY25 (annualized) excluding gains on divestment of stake in Kotak General Insurance stood at 2.38%.
• With regard to the RBI embargo on the credit card business and digital acquisition, the bank has made significant progress on all the points in the RBI order. The bank had indicated that the RBI order would impact its 811 customer acquisition and credit card business. Once the embargo is lifted, the bank expects to rebound stronger.
• The microfinance business of the bank is spread across 16 States with 27 lakh customers. The asset quality was impacted due to the seasonality and operational limitations during the election period.
• The bank aims to grow the microfinance segment in line with the industry. The bank expects better growth in the second half.
• The bank has raised the scale of branch expansion to 250 branches per year and expects to raise the branch network to 3000-3500 branches in the next 4-5 years.

Shareholding Pattern

Foreign shareholding is highest in the Kotak Mahindra Bank at 34.94% with the institutional investors holding 27.73%.

Valuation

The bank remains focused on growing its share of unsecured retail loan books to mid-teens. Stable asset quality and growing business auger well for the banks. To help drive future growth the bank plans to add a branch network. Thus, it is expected that the stock will see a price target of ₹2,237 in an 8 to 10-month time frame on a one-year average P/BV of 3.84x and FY25 (E) BVPS of ₹582.44.

Risk

• Economic slowdown
• Deterioration in asset quality

Jyothy Labs Limited

Jyothy Labs’s CMP was ₹539.25 (as on September 20, 2024) and its target price is set at ₹613 with an upside potential of 14%.

Investment Rationale

• Jyothy Labs has a well-diversified product offering within the categories of dishwashing, fabric care, household insecticides, personal care, and laundry services. The product profile comprises six power brands, viz., Ujala, Maxo, Exo, Pril, Margo, and Henko within these categories.
• The company’s fabric care sales increased by 8.8% in Q1 FY25 as compared with the same period last year. Despite intense competition, the fabric care portfolio recorded higher growth due to expanded distribution, ground-level activities, and product differentiation. The company continued to witness consistent growth in post-wash brands and main wash detergents have shown accelerated growth across channels.
• The dishwashing sales grew by 7.1% YoY for Q1 FY25. The firm said that they have aggressively invested in outdoor media and out of home apart from the brands Exo & Pril from conventional medium which has boosted their growth and has become a preferred choice among consumers in the utensils cleaning category.

• The management is hopeful for a good business performance in the coming quarters and the company will continue to expand and strengthen its footprint by taking necessary actions. Widening connect in the rural and urban markets will ensure growth for the company and contribute to the sector.
• According to the management, the company is focused on deepening its consumer connect to reach out effectively to the last mile of the country. In addition to direct distribution expansion and manufacturing capacity augmentation, it continues to boost A&P’s spend to enhance brand visibility.
• Recently, it acquired laundry services brand Quiclo from Smartwash Solutions along with its software and customer database for ₹70 lakh to strengthen its laundry business and customer base in Hyderabad.
• During the quarter, operating EBITDA rose 13.71% to ₹133.5 crores from ₹117.4 crores in the same quarter last year. EBITDA margin improved to 18% in Q1 FY25 as against 17.1% in Q1 FY24.

Shareholding Pattern

In the overall shareholding of Jyothy Labs, foreign investors hold 34.94% while promoters hold 25.89%.

Valuation

The company has focused on strengthening its balance sheet by maintaining stable working capital with better growth visibility in the near term. It has a strong grip on its product categories and this has been possible mainly due to a distribution network. The company’s cost-saving initiatives, innovation, strong brands, an integrated distribution network, and new launches will drive its volume growth on the progressing path. Thus, it is expected that the stock will see a price target of ₹613 in an 8 to 10-month time frame on a current P/BV of 10.95x and FY25 BVPS of Rs.55.98.

Risk

• Economic risk
• Highly competitive

Conclusion

While these two stocks are financially sound and within 8 to 10 months, they can achieve their target price, but still there is no guarantee that these results hold true. It is important to invest wisely and set a stop-loss target. So, open your demat account now with SMC Global Securities and invest in expert-researched stocks.

Reference:
https://www.smctradeonline.com/research/wise-money/241

Author: All Content is verified by SMC Global Securities.