Shares of Kotak Mahindra Bank (KMB) were trading nearly a percent lower on Monday after the lender's MD and CEO Uday Kotak resigned effective September 1, four months ahead of schedule. He will continue to serve as a non-executive director of the bank.

Share Market Live

NSE

However, Uday Kotak's decision to step down from the helm of affairs at KMB doesn't seem to have much impact on the stock as most analysts have maintained their ratings and kept target prices unchanged. The key monitorable for the stock, as per analysts, would be the candidature and transition of the new MD and CEO.

Goldman Sachs maintained a 'Buy' rating on Kotak Mahindra Bank with a target price of Rs 2,624, implying a further upside of 48 percent from the current market levels. "Resignation of Uday Kotak before the end of the tenure was not expected," the brokerage said.

GS further said that Kotak has underperformed due to investors' concerns around the continuity of the management and the business strategy thereafter.

Jefferies India has retained its 'Buy' rating on the counter with a target price at Rs 2,400 per share. "Uday Kotak resigned four months ahead of the end of his term to smoothen retirements," the brokerage said, adding that smooth takeover under the new leadership will be the key.

Macquarie, too, stuck to its 'Neutral' rating and target price at Rs 1,860. According to the brokerage, Kotak's early resignation doesn't alter the uncertainty about the next CEO in January next year and the bank's ability to find a suitable replacement for the iconic banker.

Investec, on the other hand, kept the 'Buy' rating and retained the target price at Rs 2,300 a share.

"Over the last four years Kotak has de-rated from 4x P/B (price-book) to 2.3 times (consolidated) and now trades at par with HDFC Bank (merged) and at a discount to ICICIBC. During this period, the bank has managed to improve its RoEs to 15-percent-plus, while improving the growth trajectory and ensuring the CoF advantage. We estimate the bank to deliver 20 percent EPS growth rate with stable RoEs of over 15 percent and remain our top pick in the large-cap bank along with ICICI Bank," Investec said in its note.

Morgan Stanley, meanwhile, continued with the 'equal weight' views and the target price of Rs 2,250 a share. The brokerage believes KMB is well-positioned to seize growth opportunities in the current economic upswing, thanks to its strong funding capabilities and effective underwriting practices. The bank's strategic shift towards higher-margin assets should also help protect margins as funding costs rise. Morgan's preference is for larger banks due to their more favorable relative valuations.

"The decision of Kotak stepping down from executive role around four 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)," said domestic brokerage house ICICI Securities.

The key monitorable for the stock would be the candidature and transition of the new MD and CEO, the brokerage said.

"Considering the culture at KMB, promotion of an insider to the top job (versus a lateral hire) would be preferred by investors, in our view. There is no change in our earnings estimates. Maintain 'Hold' on the stock with the target price cut to Rs 1,850 from Rs 2,000 earlier," it said.

Uday 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 terms for Prakash Apte (Chairman) and Dipak Gupta (Joint MD) will also end on December 31, 2023. Thus, in order to have a more gradual transition, Kotak decided to step down four months ahead of schedule while Dipak Gupta will be the interim MD and CEO till December 31, 23, subject to the 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.

(Edited by : C H Unnikrishnan)

First Published:Sept 4, 2023 2:12 PM IST