Brokerages have given a thumbs up to shares of Kotak Mahindra Bank after the lender said that the Reserve Bank of India has agreed to its proposal on dilution of promoter shareholding.
Analysts believe that the acceptance of the proposal on promoter shareholding has removed a key overhang on the stock but they will watch out as the bank still has to reduce the stake to 26 per cent in six months. Shares of Kotak Mahindra Bank jumped 4 per cent to end at Rs 1,692 on Friday.
“This settlement takes away one of the key overhangs on the stock and brings the focus back on the fundamental performance of the bank,” said Motilal Oswal.
Macquarie said this removes a major overhang on the stock and capping the promoters’ voting rights will not impact the overall functioning of the bank.
The lender’s promoter group was supposed to reduce its shareholding to 20 per cent from 30 per cent by December 2018 and further to 15 per cent by March 2020. To do this, the bank had issued non-convertible, non-cumulative, perpetual preference shares, which effectively brought down the promoters’ stake to 19.7 per cent. The RBI rejected the issue of these perpetual preference shares as it did not meet the promoter holding dilution requirement. The bank had then filed a writ petition in the Bombay High Court in December 2018.
“We think the bank should prefer promoter selling stake from or a value accretive merger. In the case of a merger, based on Kotak’s current market price, we estimate the size of merger would need to be around ?500bn (?50,000 crore) in order to bring down promoter stake from 30 per cent to 26 per cent,” said Nomura.
Motilal Oswal said the bank has shown signs of moderation in its business growth due to weaker trends in the corporate banking and CV/CE portfolio and an uptick in stress in certain business segments,” said Motilal Oswal.
