Kotak Mahindra Bank: Stable Profits, Softer Margins

Elara retained an Accumulate rating on Kotak Mahindra Bank with a target price of ₹2,481 (previously ₹2,398). The lender reported a Q2FY26 PAT of ₹3,250 crore, broadly in line with expectations but below peers operationally due to weaker NIM and elevated slippages.

NIM fell 11 bps QoQ — a larger drop than peers — as lower lending and investment yields offset a 31 bps fall in funding cost. Net interest income rose marginally (<1% QoQ), with loan growth of 4% led by corporate and mid-corporate segments. Unsecured credit contracted while liability traction remained robust.

Slippages were ₹1,630 crore (1.6%), higher than expected, driven by microfinance and retail CV portfolios. Credit cost remained elevated at 79 bps despite an AIF provision reversal. Management expects gradual normalization in retail segments, but asset quality volatility could weigh on near-term sentiment.

SBI Cards: Weak Quarter, Profitability Under Pressure

Elara maintained a Reduce rating on SBI Cards, cutting its target price to ₹901 from ₹932. While PAT rose 10% YoY to ₹440 crore, it declined 20% QoQ and missed expectations amid muted NII (+3% QoQ) and a sharp 17% rise in operating costs. ROA fell to 2.6%.

Receivables growth slowed to 6% QoQ, while interest-earning assets fell to 56% from 60% in Q1. Revolver share dipped to 22%, impacting profitability. Though credit costs improved 60 bps QoQ to 9% due to methodology changes, they remain elevated. Management aims to bring this below 9%, but Elara remains skeptical given the weak loan mix and rising cost ratios.

Card additions were modest at 0.94 million, with customer base flat at 21.5 million. Despite festive demand driving spends up 31% YoY, Elara expects FY26–28E EPS to decline by 10% as the company prioritizes balance sheet repair over growth. ROA and ROE are likely to stay around 4% and 18%, respectively.

ITC Hotels: Expansion on Track, Growth to Accelerate

Elara reiterated its Buy call on ITC Hotels with a target price of ₹266 (up from ₹256). Q2FY26 results were in line with expectations, with occupancy improving 254 bps and ARR rising 6.4% YoY to ₹11,250. RevPAR grew 9.5%, supported by ramp-up in newly launched hotels.

Revenue, EBITDA, and PAT are expected to grow at CAGRs of 18%, 23%, and 34% respectively during FY25–28E, aided by strong ARR trends and luxury residence sales. The launch of Epiq Collection — an upper-upscale brand — strengthens ITC’s portfolio, with properties coming up in Puri and Tirupati. The ITC Ratnadipa project is EBITDA positive, though ARR growth may face local competition from Cinnamon Life.

During the quarter, ITC signed management contracts for seven new hotels (780 keys) and has a robust pipeline of 59 managed hotels (~5,500 keys). The company aims to open one hotel per month over the next two years. The hotel business is valued at 28x FY28E EV/EBITDA, and the Sapphire Residences at 1x NAV, reinforcing confidence in long-term profitability.

Investor Takeaway

Elara’s coverage highlights a diverging trend — margin normalization remains slow for private lenders, while consumption-linked plays like hotels show sustained recovery. SBI Cards faces near-term growth constraints, but ITC Hotels offers strong compounding potential driven by scale, brand strength, and portfolio expansion. Access more in-depth stock insights at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.