Despite the recent severe correction in Kotak Mahindra Bank shares, Nuvama Institutional Equities anticipates the private lender will continue to underperform its rivals. It has advised transferring to HDFC Bank, Axis Bank, ICICI Bank, IndusInd Bank, and a few certain NBFCs, such as Shriram Finance, for a period of one year or more.
Following KVS Manian's resignation from Kotak Mahindra Bank and its board after 29 years of service, the brokerage drastically lowered its target price for the bank. Manian was just elevated to the position of Joint MD. Kotak Mahindra Bank's stock dropped 3.3% to Rs 1,570.10 onThursday.
"Losing a long-standing KMP is a disadvantage, especially in light of the RBI's recent ban on Kotak and the several KMP withdrawals in the previous year. We downgrade to REDUCE from BUY,” according to Nuvama. He said, this is because of the bank's relatively young CEO, several senior exits spaced out over a six-month period, a greater attrition rate than the industry, and the RBI's digital ban, which highlights the bank's lack of digital prowess - a major strength that the regulator saw as crucial.
According to the domestic brokerage, the latest adjustments will hinder earnings and development for at least the next 12 to 18 months. The goal multiple was drastically reduced from 2.2 times PBV FY26E to 1.7 times, and a new target price of Rs 1,530 was proposed, down 27% from the previous target price of Rs 2,095.
"Last year, Kotak had a large number of senior level departures. The RBI's restriction on WTD tenors forced Uday Kotak, the CEO, and Dipak Gupta, the joint MD, to leave the bank; the CFO reached retirement age, the CDO quit in November 23, and Kotak's turnover rate is still greater than peers,” as per Nuvama.
Kotak was recently prohibited by the RBI from initiating new digital onboarding and credit card issuing. "The bank is found to be materially deficient in building necessary operational resilience on account of its failure to build IT systems and controls commensurate with its growth," the RBI stated in a harshly worded letter.
Nuvama stated that throughout the next 12 to 18 months, Kotak's growth, opex, and profitability will be impacted by senior level departures in addition to the digital prohibition. PBT will decrease by 3% for every 10% increase in opex. It sees danger deriving from other plausible exits continuing.
“We think that the high attrition rate and subsequent unfavorable occurrences have made Kotak's future uncertain. Senior bankers tell us that the bank would lag behind its aggressive counterparts by one to two years as a result of the prohibition. In Q4, several banks responded to the RBI's proddings. We think that some, like ICICI, deliberately enhanced LDR, LCR, and delayed unsecured loans, even if some may have been requested to do so," Nuvama stated.
Although KMB could report Q4 results that outperform rivals, Nuvama stated that given the uncertain next 12 to 18 months, it does not see this as a trigger.
"We have set our multiple at a 10% reduction to Axis Bank. The stock is now rated as "REDUCE" from "BUY" at our revised TP of Rs 1,530. Despite the stock's recent severe correction, we anticipate more underperformance relative to peers. We advise transferring to HDFC Bank (for a term of one year or more), Axis, IIB, ICICI, and a few more carefully chosen NBFCs, such as Shriram."
