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This article is more than 3 year old.

Kotak Mahindra Bank share hits 12-week low; overhang of large share sale exists

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The RBI told Kotak Mahindra Bank on Tuesday its issuance of non-convertible perpetual non-cumulative preference shares (PNCPS) does not meet its promoter holding dilution requirement

Kotak Mahindra Bank share hits 12-week low; overhang of large share sale exists
Kotak Mahindra Bank Ltd drops as much as 3.3 percent to Rs 1,250.60, its lowest since May 24. Shares traded at Rs 1248, down by 3.38 percent on the BSE at 1.24 pm.
The Reserve Bank of India (RBI) told company on Tuesday its issuance of non-convertible perpetual non-cumulative preference shares (PNCPS) does not meet its promoter holding dilution requirement.
Kotak says continues to believe it has met the requirement and will engage with RBI on the same.
Earlier this month, Kotak approved private placement of PNCPS for up to Rs 5 billion ($71.19 mln) to cut bank founders’ stake below 20 percent as per RBI mandate.
Uday Kotak, Asia’s richest banker who heads Kotak Mahindra, is further required to lower his holding to 15 percent by March 31, 2020.
Jefferies says Kotak’s stance on its step & method even in the face of RBI’s rejection and, playing in public forum, is unusual and unheard of; keeps ‘underperform’ rating and price target of Rs 1,100.
Expects Kotak to engage in close-door negotiations. If there’s no resolution, overhang of a large share sale exists and is a potential negative. Valuation multiples are ridiculously expensive vs the underlying profitability, says Jefferies.
Goldman Sachs says RBI may potentially be setting a precedent with this decision. RBI rejection could impact the stock in near-to-medium term; keeps ‘buy’ with price target of Rs 1,506.
Citi says Kotak may choose to either raise primary capital or promoter may elect to sell part of holding in secondary market or may consider a meaningful acquisition; keeps ‘buy’ rating with price target of Rs 1,565.
Morgan Stanley says unless approved by RBI, it would be a slight negative as overhang of significant equity supply would increase; maintains ‘overweight’ with price target of Rs 1,435.
Another potential solution could be to look for sizeable inorganic growth opportunities. While promoter holdings could also be reduced via equity capital raising, it is unlikely given its good capital position, says Morgan Stanley.
Stock has risen about 28 percent this year as of last close.
Twenty-seven of 36 brokerages rate the stock “buy” or higher, 5 “hold” and 4 “sell” or lower; their median price target is Rs 1,428.
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