Shares of Kotak Mahindra Bank will be in focus in Monday's trade after the private lender posted in-line Q2 show, with a 24% jump in net profit on a 23% rise in net interest income (NII). While soft savings and net interest magtin (NIM) are likely priced in, a new external MD and CEO Ashok Vaswani and a likely acquisition of IDBI Bank could serve as overhangs in the near term, analysts say.

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"So far, Kotak has been run largely by a core team headed by a promoter-CEO that has not changed since inception. While Kotak's new CEO brings with him rich experience in digital and consumer banking, going by the experiences at other banks, we believe it would take the new CEO at least 18–24 months to implement his perspectives. So his appointment would likely be a near-term overhang on the stock," Nuvama said in a note.

In a surprising move, the RBI has cleared the appointment of Vaswani, superseding KMB’s internal candidates (EDs). "We believe the new MD and CEO has a tall task on his hands to manage senior management attrition or business dislocation, if any, typically seen post top-management changes in banks; meeting investors’ high expectations as did the outgoing MD and CEO Uday Kotak is another cap to don for Vaswani," Emkay Global said.

Factoring-in management transition-related risks, a clutch of top foreign and domestic brokerages have either slashed their ratings or maintained their reservations on the KMB stock.

While CLSA recommended an 'Outperform' rating while slashing the price target, Bernstein retained a 'Market Perform' view on the counter. Jefferies also lowered its price target as it downgrades to 'Hold' rating.

According to Jefferies, the standalone profit was a tad ahead of estimates. More important was the appointment of Vaswani as the MD and CEO. "As expectation was for elevation from the bank's senior management, this may add some uncertainty," the brokerage said.

Bernstein said the change in CEO was expected but an external candidate would raise questions. "External candidate would raise question on any potential changes in strategy. External candidate decision delays in major new initiatives for example the IDBI deal."

Kotak stock: Time correction to continue

Kotak Bank has already corrected sharply due to concerns around the change in top management, and the exit of Uday Kotak, who has been synonymous with the bank and the driving force of its strategy and competitive positioning since inception.

The stock has underperformed bank NIFTY by 10% year-on-year and 4% so far this year. Nuvama said the likely acquisition of IDBI Bank, which Kotak has not denied, as an overhang given the vast difference between private and PSU cultures.

Given the sharp correction in stock price, Nuvama believes the downside is rather limited. That said, upside triggers are not visible either.

Meanwhile, brokerage Nirmal Bang is hopeful, saying the appointment of Vaswani as new MD and CEO of the bank brings in clarity with respect to leadership; smooth management transition will be key.

"With his vast expertise in building corporate and consumer lending businesses at a global scale, Vaswani’s leadership is expected to accelerate digital and tech initiatives at Kotak Bank," the brokerage said.

According to Motilal Oswal Securities, Kotak has delivered a mixed quarter, with a beat in earnings and a 35 basis points sequential contraction in NIM. The earnings, Motilal said, was driven by higher other income and controlled opex. Asset quality improved slightly, aided by healthy recoveries, even as slippages increased sequentially.

While Motilal remains constructive on the bank’s business growth outlook and its ability to deliver superior return on assets, the brokerage believes that execution under the new CEO will remain a key monitorable to assess the stock’s performance over the near term.

First Published:Oct 23, 2023 9:00 AM IST