Kotak Mahindra Bank Q2 Results Review: Smooth Succession Of New CEO Will Be Crucial
Over the next two months, the bank will have a clearer idea of when Ashok Vaswani will join the bank as the new CEO.
The appointment of Ashok Vaswani, an external candidate, as managing director and chief executive officer of Kotak Mahindra Bank Ltd. has raised concerns among investors about a potential change in the growth strategy of the bank, according to analysts.
"While a change in CEO was expected, an external candidate would raise questions on any potential changes in strategy, delays in major new initiatives (e.g., the IDBI deal), etc.," Bernstein Research said in a note.
The selection of Vaswani, who is set to take charge by Jan. 1, 2024, came as a surprise given the bank's full-time director, KVS Manian and Kotak Investment Banking Chief Executive Officer, Shanti Ekambaram, were in the race for the top post.
A smooth transition will be crucial, Jefferies noted while tweaking its rating to 'hold' from 'buy' with a price target of Rs 1,940.
Over the next two months, the bank will have a clearer idea of when Vaswani will join the bank as the new CEO, interim CEO Dipak Gupta told analysts in a post-earnings call on Saturday.
The private lender's standalone net profit rose 23.5% year-on-year to Rs 3,190 crore in the quarter ended September, backed by lower operating expenses and credit costs, according to an exchange filing.
Credit costs for the bank stood at 47 basis points in the second quarter of FY24, down from 54 basis points a quarter ago.
Additionally, the recently released ActivMoney product, which Motilal Oswal Securities predicts will maintain the long-term flow of deposits, is what is responsible for the 28% quarter-over-quarter increase in deposits. The bank's net interest margin fell 35 basis points in the quarter to 5.22%.
The management highlighted that about 15 bps of decline was due to the impact of I-CRR and liquidity buffer. The pace of moderation will moderate going forward, the brokerage said.
Bernstein Research
It was an average quarter where the overall return on assets was a slight miss to consensus, despite the help from opex and provisions.
The announced CEO change is likely to cause some near-term uncertainty.
Maintains the 'market perform' rating with a target price of Rs 2,100.
Jefferies
Sees slight pressure on net interest margins, even as one-off compression normalises.
Credit costs are seen at around 50–70 basis points over the next two years as a share of unsecured loans.
The bank's valuation premium may recede by 10–15% to ICICI Bank Ltd. and HDFC Bank Ltd.
Downgrades ratings to 'hold' from 'buy' with a price target of Rs 1,940.
A better-than-expected growth and smooth succession can be upside risks to earnings and valuations.
Motilal Oswal Financial Services Ltd.
Mixed quarter, with a beat in earnings and a 35 bps QoQ contraction in NIMs.
Standalone PAT grew 24% YoY, driven by higher fee income and trading gains of Rs 1.5 billion.
Steady deposit growth even though CASA mix moderated 70 bps QoQ, due to a shift in savings account deposits.
Opex growth in control at 19% YoY, due to an increase in commercial and marketing expenses.
Maintains 'neutral' rating with a target price of Rs 1,900, implying a potential upside of 7%.
Systematix Institutional Equities
Advances growth of 18% YoY, with 73% of incremental growth contributed by retail.
Estimate a core PBT FY23-26 CAGR of 8%, after factoring in NIM impact from elevated funding cost pressures and higher credit costs.
Higher surplus liquidity is likely to reduce in the coming two quarters and provide some degree of NIM support.
New CEO appointment brings three challenges, one of them being managing attrition of key management personnel, considering two executive directors were speculated to be in the reckoning for the top post.
Has a 'hold' rating, with a target price of Rs 1,940.
