While Kotak Mahindra Bank shares have already corrected sharply, Nuvama Institutional Equities expects the private lender to underperform peers going ahead. It has recommended switching to ICICI Bank, Axis Bank, IndusInd bank, HDFC Bank (for a 1 year-plus horizon), and a few select NBFCs including Shriram Finance.
The brokerage has cut its target price for Kotak Mahindra Bank sharply as KVS Manian resigned from Kotak Mahindra Bank and its board after 29 years of service. Manian was recently promoted to the role of Joint MD.
On Thursday, Kotak Mahindra Bank shares fell 3.3 per cent to Rs 1,570.10.
“Losing a long standing KMP is a negative amid many KMP exits in the last one year and on the back of RBI’s recent ban on Kotak. With a relatively new CEO, many senior exits bunched up over six months, higher-than-industry attrition rate and RBI’s digital ban highlighting that digital prowess that the bank flagged off as a key strength is lacking as viewed by the regulator, we downgrade to ‘REDUCE’ from ‘BUY’,” Nuvama said.
The domestic brokerage said that the recent changes will hurt growth and profit at least for 12–18 months. It has cut target multiple sharply to 1.7 times PBV FY26E from 2.2 times and suggested a new target price of Rs 1,530 against Rs 2,095 earlier (down 27 per cent.
“Kotak already saw many senior level exits last year. Uday Kotak, CEO and Dipak Gupta, Joint MD had to exit the bank due to RBI’s cap on WTD tenors; the CFO reached retirement age, the CDO resigned in Nov-23 and Kotak’s attrition rate remains higher than peers,” Nuvama said.
The RBI recently banned Kotak from fresh digital onboarding and issuance of new credit cards. In a strongly worded letter, RBI highlighted that “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.”
Nuvama said senior level exits coupled with the digital ban will impact Kotak’s growth, opex and profitability over the next 12–18 months. Every 10 bps rise in opex shall result in a 3 per cent fall in PBT. It sees continued risk emerging out of other likely exits.
“We believe recent negative events and high attrition make the outlook for Kotak unpredictable. We learn from senior bankers the ban will put the bank one–two years behind aggressive peers. Many banks have acted on RBI nudges in Q4. While some may have been asked to, we believe some like ICICI voluntarily improved LDR, LCR and slowed unsecured loans,” Nuvama said.
Nuvama said while KMB may post an earnings beat in line with peers in Q4, given an uncertain 12–18 months it does not see this as a trigger.
“Our multiple is pegged at a 10 per cent discount to Axis Bank. At our new TP of Rs 1,530, the stock rates ‘REDUCE’ from ‘BUY’. While the stock has already corrected sharply, we expect it to underperform peers going ahead “We recommend switching to ICICI, Axis, IIB, HDFC Bank (for a 1Y-plus horizon), and a few select NBFCs including Shriram,” it said.
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