Kotak Bank shares plunge post Q2, new CEO & MD’s appointment. Should you buy, sell or hold?

Shares of Kotak Mahindra Bank fell 2.6% to the day’s low of Rs 1,722.45 on the NSE on Monday amid downgrades and price target cuts by a clutch of top brokerages following the lender’s September quarter earnings and appointment of an external CEO & MD against expectations of an internal one.

The stock was the worst performer among the Nifty stocks in the early trade.

Among foreign brokerages, Jefferies downgraded the stock to hold while slashing the price target while CLSA took a contrary view and maintained an outperform rating on the counter.

Among the domestic ones, Motilal Oswal reiterated a neutral stance while Nuvama recommended ‘hold’.

Kotak Mahindra Bank on Saturday reported a 24% year-on-year growth in net profit for the quarter ended September to Rs 3,191 crore. Total income from operations increased 36% on year to Rs 13,507.40 crore. Net interest income, the difference between interest earned and interest expended, grew 23.5% on year to Rs 6,297 crore. Provisions during the quarter doubled on year to Rs 367 crore.

Moreover, the bank received Reserve Bank of India nod for the appointment of Ashok Vaswani as the managing director and chief executive officer for a period of three years from January 1, 2024.

Kotak Bank had earlier appointed Dipak Gupta as the interim MD & CEO after the resignation of Uday Kotak with effect from September 1.This is what brokerages recommended:

Jefferies: Hold | Target: Rs 1,940
Jefferies has downgraded the Kotak Mahindra Bank shares to hold from an earlier buy stance and cut the target price to Rs 1,940 from Rs 2,400.

The Q2 results were a tad ahead from its estimates though the NIMs deflated by one-off events, Jefferies said in its post earnings stock review.

Commenting on Vaswani’s appointment as MFD & CEO, Jefferies said that there was an expectation for elevation from the bank’s senior management but the current development could add some uncertainty. It said that it will watch for signs of smooth succession.

Motilal Oswal: Neutral | Target: Rs 1,900
Motilal Oswal has taken a neutral stance on the Kotak Mahindra Bank shares opining that the execution under the new CEO will remain a key monitorable to assess the stock performance over the near term. The price target is placed at Rs 1,900.

“Kotak Bank has delivered steady performance over the years, with its RoE gradually improving to >14%. The bank has delivered robust traction in loan growth over FY21-23 at a 19% CAGR and we estimate the bank to sustain a 17-18% CAGR over FY23-26E,” Motilal said in a note.

Asset quality has remained steady and the strong CASA ratio will limit pressure on margins thereby enabling the bank to deliver 15% PAT CAGR over FY23-26E, the brokerage said further.

KMB’s stock has underperformed the Bank Nifty/Nifty-50 index by 10%/15% in the past 12 months and the stock has undergone notable de-rating over the past three years, the note said further.

Nuvama: Hold | Target: Rs 1,900
Nuvama retains a ‘Hold’ on Kotak Bank shares calling the appointment of a new external CEO as an overhang though soft savings and NIM are likely to have priced in, it said.

The brokerage has tweaked earnings and cut the target price to Rs 1,900 based on 2.6x BV FY25E from Rs 2,120/2.8x BV FY25E.

Kotak posted in-line Q2FY24 NII and the loan growth was strong while deposit growth lagged loan growth, Nuvama opined.

Performance on savings remained weak with total savings deposits remaining flat QoQ. NIM fell off 35 bps QoQ to 5.2% against its expectation of 17bp.

CLSA: Outperform | Target: Rs 2,050
While CLSA maintains an ‘Outperform’ rating on the scrip, it has cut the target price to Rs 2,050 from Rs 2,200.

Appointment of external candidate came as a surprise to the market, which was expecting the new CEO to be an internal candidate, however, it ends the year long speculation on who will lead Kotak Bank loan growth on track, drivers remain the same, CLSA said in a note.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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