Kotak Mahindra Bank shares fall despite in-line Q2 results, new CEO: Time to buy?

CLSA has an 'outperform' rating on the stock. However, it cut the target price to Rs 2,050 per share from Rs 2,200 earlier. Kotak Mahindra Bank's loan growth is on track, and drivers remain the same. However, sharp net interest margin (NIM) compression in Q2 FY24 came in as a surprise, it noted. The global brokerage raised Kotak Mahindra's FY24 profit estimate by 6 percent; kept the FY25 estimates largely unchanged; and cut the FY26 estimates by 7 percent due to normalisation in credit costs.

Also Read | Kotak Mahindra Bank Q2 Results: Net profit jumps 24% to Rs 3,191 crore, asset quality stays healthy

Morgan Stanley has an 'equal-weight' rating on the Kotak Bank stock with a target price of Rs 2,250 per share. It said that the lender's deposit growth remains strong, and the potential for operating leverage appears strong. Operating leverage measures the degree to which a company can increase its operating income by raising the revenue. Capital market trends have picked up, and analysts expect sustained strong earnings in the near term.

Domestic brokerage Motilal Oswal said that Kotak Mahindra Bank continues to guide for steady trends in retail payment defaults, and aims to further increase the mix of unsecured loans to mid-teens from 11 percent. "We increase our FY24/FY25 PAT estimates by 5 percent/7 percent, reflecting strong other income and controlled opex," it said while maintaining 'neutral' rating on the stock with a target price of Rs 1,900.

First external CEO for Kotak Bank

The Reserve Bank of India (RBI) has also approved the appointment of Ashok Vaswani as Kotak Bank’s next managing director and chief executive officer. According to Bernstein, a change in CEO was expected but an external candidate would raise questions about any potential changes in strategy. There are also concerns of decision delays in major new initiatives. The brokerage has a 'market perform' rating on the Kotak Mahindra Bank stock with a target price of Rs 2,100 per share.

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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 its inception. "While the 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," said Nuvama Institutional Equities.

Vaswani's appointment would likely be a near-term overhang on the stock, the brokerage said, as it kept a ‘hold’ rating on the stock with a target price of Rs 1,900 per share.

Jefferies has downgraded Kotak Mahindra Bank to a 'Hold' rating and reduced the target price from Rs 2,400 to Rs 1,940. The appointment of Ashok Vaswani as MD & CEO was a significant development. Since there were expectations for an internal elevation within the bank's senior management, this decision introduces some uncertainty, it noted.

Analysts at Motilal Oswal also remain constructive on the bank’s business growth outlook and its ability to deliver superior RoA. However, they believe that execution under the new CEO will remain a key monitorable to assess the stock’s performance over the near term.

Also Read | Kotak Mahindra Bank to appoint Ashok Vaswani as new MD & CEO

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