Hold Kotak Mahindra Bank Ltd For Target Rs. 1,850 - Motilal Oswal Financial Services
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Mr. Uday Kotak steps down as MD & CEO; remains associated as non-executive director
As per the meeting held on 2nd Sep’23, the board of Kotak Mahindra Bank (KMB) has informed that Mr. Uday Kotak has resigned as the MD & CEO of the bank and has become a non-executive non-independent director of the bank for a period of 5 years. He would not be liable to retire by rotation. Mr. Dipak Gupta (joint MD) would carry out MD & CEO responsibilities in the interim, subject to regulatory and other approvals. The key monitorable for the stock would be the candidature and transition of the new MD & CEO. We maintain HOLD on KMB with a revised target price of INR 1,850 (earlier: INR 2,000) valuing the stock at ~2.6x FY25E core banking book (earlier: ~2.8x). Upside risk is in growth exceeding expectations and downside risk is in less than smooth management transition. Mr. Dipak G
Mr. Dipak Gupta to carry out MD & CEO role in the interim
As per the extant RBI norms on maximum permissible tenure for MD&CEO and whole-time directors, the term of Mr. Kotak and Mr. Dipak Gupta (joint MD) is ending on 31st Dec’23. With a view to sequence this process from a transition and stability perspective, Mr. Kotak has decided to step down ahead of the scheduled term. As an interim arrangement, Mr. Gupta, joint managing director, will carry out the duties of the MD & CEO till 31st Dec’23, subject to RBI and other approvals. The bank has already made an application to RBI for the approval of the new MD & CEO and is awaiting RBI decision in this respect
Maintain HOLD; cut target price to INR 1,850
The decision of Mr. Kotak stepping down from executive role around 4 months ahead of the scheduled term has come as a somewhat negative surprise. Important to note is that Mr. Kotak would still remain associated with the bank as a non-executive director (thereby ensuring continuity). The key monitorable for the stock would be the candidature and transition of the new MD & CEO. Considering the culture at KMB, promotion of an insider to the top job (vs 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 INR 1,850 (earlier: INR 2,000), valuing it at ~2.6x FY25E core bank ABV (earlier: ~2.8x).
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