Exploring new horizons-Kotak Mahindra Bank
Kotak Mahindra Bank-An Overview
Kotak Mahindra Bank (KMB) is one of India's leading banking and financial services group, offering a wide range of financial services.KMB has transformed from an NBFC (non-banking financial company) into one of the fastest-growing banks in India after obtaining a banking license in 2003. The bank offers personal finance solutions from savings accounts to credit cards, distribution of mutual funds to life insurance products. Kotak Mahindra Bank offers transaction banking, operates lending verticals, manages IPOs, and provides working capital loans. Kotak has one of the largest and most respected Wealth Management teams in India, providing the widest range of solutions to high-net-worth individuals, entrepreneurs, business families, and working professionals. Over the years, it has entered various financial service businesses, such as securities, investment banking, life insurance, asset management, and retail banking, and it has become a leading player in domestic capital markets.
Recent updates from the company shows that the growth appetite improved a bit in retail & SME, the large corporate lending still not big focus despite bank's low funding cost,bank is open to new opportunities, prefering credit cards, gold, & MFI loans,succession will offer scope to reorg. teams & look at fresh talent — our base case is internal elevation for CEO. Growth uptick & succession will be key to stock returns.
Bank has scaled up liability franchise well with Casa ratio of 60% but it has been conservative about growing the large corporate book due to predicted lower yields. Limited changes are found to that outlook, and even if book starts to grow from here, it may lag the retail piece. Recently, Kotak group acquired a small vehicle financing arm of Volkswagen India that gave them Rs13bn of loans (0.5% of consolidated loans) and 30k customers. Management is open to new opportunities in new areas such like credit cards, gold financing and MFI Kotak intends to acquire Citibank's India credit card business which would provide more contributions to loans.
So the quality of cross-sell to these customers will be key to value creation, with
valuation estimated at US$2.5-3bn.As the Bank prepares for succession after retirement of Mr. Uday Kotak (Promoter and CEO) and Mr. Dipak Gupta (Jt. MD) in Dec-23, it is taking a holistic view about it. Mr. Kotak might return as non-executive director for a reasonable term (up to 8yrs) to guide the bank. Bank seems to be open to choices from inside and outside the bank and to make required changes in the team.
There will be preference to recruit fresh talent from tech-domains. Mr. Manian (Group President, Corp & Investment banking)launched bank's consumer franchise &. Mr Shah (Group President in charge of key subsidiaries) are likely key contenders.So far, among large private banks, only Axis Bank has appointed CEOs from outside.While there is time for succession planning, pickup in growth and clarity on plans will be key to valuation re-rating.
Parameters to kickstart investing in Kotak
The bank owned a total assests of Rs.3602517mn in FY20 which grew upto Rs.3834886 mn.Net profit increase from Rs.59472mn in FY20 to Rs.69649mn in FY21.P/E ratio is 43.Earning Per Share grew from 31 to 35 from FY20 to FY21.Like al other banks, Kotak also faced challenged due to COVID-19.But the effect is comparatively lower.
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