In its analysis, ICICI Securities says the decision of Uday Kotak to step down from an executive role around 4 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).
The key monitorable for the stock would be the candidature and transition of the new MD & CEO. Considering the culture at the bank, 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 Rs1,850 (earlier: Rs 2,000), valuing it at 2.6x FY25E core bank ABV (earlier: 2.8x).
Asset quality remains steady, and the strong CASA ratio will limit pressure on margins and enable a 15% PAT CAGR over FY23-25E. We retain our Neutral rating with a TP of `2,000 (2.7x FY25E ABV and Rs 560 for subs), the analysts said.
Kotak resigned from the MD & CEO position of the bank, effective September 1, ’23. A founding member of the bank, he has been part of the institution for the past 38 years. His contribution was thus pivotal in guiding the bank through its transition from being an NBFC to obtaining a banking license in 2003 and evolving as one of the most successful and reputed financial organisations in the country. Under Kotak’s leadership, the bank has become the fourth-largest private bank and has established a prominent presence across the financial services spectrum, including asset management, broking, investment banking, life insurance, etc.
Kotak has cited significant personal and other family commitments, besides a sequenced leadership transition at the bank, as the key reasons behind his resignation from executive responsibilities. The terms for Prakash Apte (Chairman) and Dipak Gupta (Joint MD) will also end on December 31, ’23.