Shares of Kotak Mahindra Bank Ltd will be in focus on Monday after MD and CEO Uday Kotak resigned effective September 1, four months ahead of schedule. A founding member of the bank, Kotak is a part of the private bank for the past 38 years. He will continue to serve as a non-executive director of the bank.
Motilal Oswal Securities said Kotak's contribution was pivotal in guiding the bank through its transition from being an NBFC to obtaining a banking license in 2003 and evolving as one of the most successful and reputed financial organisations in the country. "Under Mr. Kotak’s leadership, the bank became the fourth-largest private bank and established a prominent presence across the financial services spectrum, including asset management, broking, investment banking, life insurance, etc," the brokerage said.
Kotak has cited significant personal and other family commitments, besides a sequenced leadership transition at the bank, as the key reasons behind his resignation from executive responsibilities.
"The decision of Kotak stepping down from executive role around 4 months ahead of the scheduled term has come as a somewhat negative surprise. Important to note is that Kotak would still remain associated with the bank as a non-executive director (thereby ensuring continuity). The key monitorable for the stock would be the candidature and transition of the new MD & CEO. Considering the culture at KMB, promotion of an insider to the top job (vs a lateral hire) would be preferred by investors, in our view," ICICI Securities said in a note.
ICICI Securities said there is no change in its earnings estimates. It has maintain a 'Hold' on the stock with the target price cut to Rs 1,850 from Rs 2,000, valuing the stock at 2.6 times FY25 core bank ABV.
Motilal Oswal said the terms for Prakash Apte (Chairman) and Dipak Gupta (Joint MD) will also end on December 31 and thus, Kotak decided to step down four months ahead of schedule in order to have a more gradual transition while Gupta will be the interim MD and CEO till December 31, subject to RBI approval.
The bank has already submitted two names for the CEO role to the RBI and is waiting for the regulator’s approval. As per reports, two senior management team members and whole-time directors KVS Manian and Shanti Ekambaram, are the contenders for the top job.
"Kotak Bank has delivered steady performance over the years, with its RoE gradually improving to over 14 per cent. The bank has delivered robust traction in loan growth over FY21-23 at a 19 per cent CAGR and we estimate the bank to sustain a 17-18 per cent CAGR over FY23-25E. Asset quality remains steady, and the strong CASA ratio will limit pressure on margins and enable a 15 per cent PAT CAGR over FY23-25E. We retain our Neutral rating with a target of Rs 2,000," it said.
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