The MD and CEO of one of the largest private sector banks in India recently resigned four months ahead of schedule. While this untimely resignation wasn’t expected, brokerages believe in the company and see an upside of up to 49 per cent.
Uday Kotak stepping down from the helm of affairs at Kotak Mahindra Bank on September 01, 2023, ahead of the scheduled term doesn’t seem to have a major impact on the stock, as it is trading flat. Uday Kotak will continue to remain associated with the bank as a non-executive director.
Most analysts have maintained a buy rating on it and have kept the target prices unchanged. They say that the key monitorable for the stock would be the candidature and transition of the new MD and CEO.
Kotak decided to step down from the role a little earlier in order to have a more gradual transition. The terms for Prakash Apte (Chairman) and Dipak Gupta (Joint MD) will also end on December 31, 2023. Dipak Gupta will be the interim MD and CEO until December 31, 2023, subject to RBI’s approval.
In his resignation letter, he said that he has mulled over the decision to resign for quite some time and he believes that it is the right thing for the institution.
“With a view to sequencing this process from a transition and stability perspective, I have decided to take this action after completion of the financial year and the AGM for FY2023. The Bank has taken necessary steps on succession and we await the RBI’s decision. The Bank’s senior management team with years of experience is well placed to carry on this legacy,” he added.
Uday Kotak is the founder and promoter of Kotak Mahindra Bank. He has been the Managing Director and CEO since August 01, 2022, and has played an important role in the institution’s growth over the past 38 years. He is a recipient of many accolades during his tenure.
Kotak Mahindra 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 full-time directors, KVS Manian and Shanti Ekambaram, are the contenders for the role.
“Resignation of Uday Kotak before the end of the tenure was not expected,” said Goldman Sachs. However, it has maintained a buy rating on Kotak Mahindra Bank with a target price of ₹ 2,624. This connotes an upside of 48.25 per cent as compared to its closing share price of ₹ 1770.00 apiece. It said that the bank underperformed due to investors’ concerns around the continuity of the management and the business strategy thereafter.
“Uday Kotak resigned four months ahead of the end of his term to smoothen retirements,” said Jefferies India. It added that a smooth takeover under the new leadership will be the
key. The brokerage has retained its buy rating on the stock with a target price of ₹ 2,400 per share. This translates to an upside of 35.59 per cent as compared to the company’s share price.
Morgan Stanley continued to maintain its ‘equal-weight’ rating on the stock with a target price of ₹ 2,250 apiece. This implies an upside of 27.12 per cent compared to its current share price. It believes that the bank is well-positioned to seize growth opportunities in the current economic upswing, thanks to its strong funding capabilities and effective underwriting practices. Its strategic shift towards higher-margin assets should also help protect margins as funding costs rise.
“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 ICICI Securities.
With a market capitalization of ₹ 3,50,268 crores, Kotak Mahindra Bank is a large-cap company. It has a low return on equity of 1.69% and a dividend yield of 0.09%. Its shares were trading at a price-to-earnings ratio (P/E) of 21.46, which is higher than the industry P/E of 13.97, indicating that the stock might be overvalued as compared to its peers.
Written by Simran Bafna
Disclaimer
The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Dailyraven Technologies or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
