Kotak Mahindra Bank Ltd posted comparable September quarter results, with a 24% increase in profit on a 23.5% increase in net interest income. Analysts believe a soft net interest margin (NIM) is already in the pricing, but the hiring of a new external MD & CEO Ashok Vaswani, as well as a possible purchase of IDBI Bank, could serve as short-term overhangs.
In the event of Vaswani's appointment, the Street expected Kotak Mahindra Bank's two existing Executive Directors to be the only two candidates for the bank's CEO position. "So far, Kotak has been largely run by a core team led by a promoter-CEO who has not changed since the company's inception." While the new CEO brings extensive experience in digital and consumer banking, based on previous experiences, we anticipate it will take the new CEO at least 18-24 months to implement his ideas. As a result, his appointment is likely to be a short-term drag on the stock, according to Nuvama.
Kotak Mahindra Bank shares have lagged Nifty Bank by 4% year to date. Given the significant differences in private and public sector cultures, Nuvama sees the possible takeover of IDBI Bank, which Kotak has not denied, as an overhang.
According to Motilal Oswal Securities, Kotak Mahindra Bank had a mixed quarter, with earnings beating expectations but NIM falling by 35 basis points sequentially. According to the domestic brokerage, the earnings were driven by higher other income and controlled opex. Even as slippages increased sequentially, asset quality improved modestly, aided by solid recoveries.
"The bank continues to forecast stable trends in retail delinquencies and aims to increase the mix of unsecured loans to the mid-teens from 11% currently." While we remain optimistic about the bank's business growth prospects and capacity to produce outstanding RoA, we feel that execution under the new CEO will be a significant indicator in determining the stock's performance in the near term. "We raise our FY24/FY25 PAT estimates by 5%/70%, reflecting strong other income and controlled opex," the company added.
Motilal Oswal kept its 'Neutral' rating on the stock and set a target price of Rs 1,900.
Kotak Mahindra Bank shares have dropped recently due to fears about a change in senior management and the departure of Kotak, who has been synonymous with the bank and the driving force behind its strategy and competitive posture since its establishment. "Given the sharp drop in the stock price, we believe the downside is relatively limited." "However, upside triggers are also not visible," Nuvama remarked.
Nirmal Bang is optimistic. It stated that while the nomination of Ashok Vaswani as the bank's new MD and CEO provides clarity in terms of leadership, a smooth management transition will be critical.
"With his vast experience in building corporate and consumer lending businesses on a global scale," Vaswani's leadership is expected to boost Kotak Bank's digital and technology ambitions, according to the company. Nirmal Bang arrived at a target price of Rs 2,182 on the company after adding a subsidiary valuation of Rs 381 per share, up from Rs 2,371 before, valuing the bank at 3.1 times FY25 ABV.