Kotak Mahindra Bank Ltd reported comparable third-quarter results, with a 24% increase in profit and a 23.5% increase in net interest income. Analysts feel that a soft net interest margin (NIM) is already built into the pricing, but the appointment of a new external MD & CEO, Ashok Vaswani, as well as the probable acquisition of IDBI Bank, could serve as short-term overhangs.
The Street expected Kotak Mahindra Bank's two existing Executive Directors to be the only two candidates for the bank's CEO position if Vaswani was appointed.
"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 substantial experience in digital and consumer banking, we predict that it will take at least 18-24 months for the new CEO to implement his ideas. As a result, according to Nuvama, his hiring is likely to be a short-term negative on the stock.
Kotak Mahindra Bank shares have lagged behind Nifty Bank by 4% so far this year. Given the enormous cultural gaps between the private and public sectors, Nuvama views the potential purchase of IDBI Bank, which Kotak has not disputed, as an overhang.
Kotak Mahindra Bank had a mixed quarter, according to Motilal Oswal Securities, with earnings above estimates but NIM decreasing by 35 basis points sequentially. Earnings were boosted higher by higher other income and controlled opex, according to the domestic brokerage. Despite the fact that slippages increased sequentially, asset quality improved somewhat, thanks to robust 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.
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