Top Indian Companies: Kotak Mahindra Bank Limited

Kotak Mahindra Bank Limited is an Indian banking and financial services company headquartered in the city of Mumbai. It offers banking products and financial services for corporate and retail customers in the areas of personal finance, investment banking, life insurance, and wealth management.

In 1985, Uday Kotak founded what later became an Indian financial services conglomerate. In February 2003, Kotak Mahindra Finance Ltd. (KMFL), the group's flagship company, received a banking licence from the RBI. With this, KMFL became the first non-banking finance company in India to be converted into a bank. Kotak Mahindra Bank has a weightage of 3.60% on the Nifty-50 index.

Mergers and Acquisitions

ING Vysya Bank

In 2015, Kotak Bank acquired ING Vysya Bank in a deal valued at ₹150 billion (US$2.0 billion After the merger, ING Group, which controlled ING Vysya Bank, owned a 7% share in Kotak Mahindra Bank.

Ferbine

In 2021, the bank acquired a 9.99% stake in Ferbine, an entity promoted by Tata Group, to operate a Pan-India umbrella entity for retail payment systems.

Subsidiaries and associates

Major subsidiaries of the Bank include

• Kotak Mahindra Prime

• Kotak Mahindra Investments

• Kotak Securities

• Kotak Mahindra Capital

• Kotak Mahindra Life Insurance

• Kotak Mahindra General Insurance

• Kotak AMC

• Kotak Investment Advisors

• Kotak Capital Company

Shareholding Pattern

Holder's Name No of Shares % Share Holding

NoOfShares 1983899969 100%

Promoters 515564896 25.99%

ForeignInstitutions 834483429 42.06%

NBanksMutualFunds 168738402 8.51%

Others 146494644 7.38%

GeneralPublic 180080145 9.08%

Financial Institutions 138538453 6.98%

FY2023 Q4 and Full Year Result

Kotak Mahindra Bank on Saturday reported a 14.29 per cent increase in its March quarter consolidated net profit at Rs 4,566 crore, driven by healthy performance on the core parameters.

On a standalone basis, the private sector lender's post-tax net profit jumped 34 per cent to Rs 3,496 crore, indicating that the subsidiaries' performance limited the profit growth at a consolidated level.

The bank's net profit for FY23 came at Rs 10,939 crore on a standalone basis, up from Rs 8,573 crore in the year-ago period.

Its core net interest income grew 35 per cent to Rs 6,103 crore on an 18 per cent increase in advances and a huge widening in the net interest margin to an impressive 5.75 per cent.

The bank's other income grew by over 30 per cent to Rs 2,186 crore, up from Rs 1,705 crore in the year-ago period and Rs 1,948 crore in the preceding December quarter.

Its chief financial officer Jaimin Bhatt said the margins have benefited because of the repeated hikes in interest rates by the RBI as a good part of its loans are linked to the external benchmark of repo rate, and added that 5.75 per cent is a peak.

He said the bank has always had higher margins when compared to peers, and it will aim to keep the number above the 5 per cent mark.

Its managing director and chief executive Uday Kotak said the bank's credit growth will grow at 1.5-2 times the nominal growth, which he estimated to come at above 11 per cent. Corporate credit growth will come at 15-20 per cent.

The corporate loan portfolio grew by 1 per cent in the reporting quarter, and President K V S Manian said the corporate bank is not witnessing a very strong capacity creation by the corporate sector.

Making it clear that the right risk-return rewards are a necessity for it to grow the book, Manian said the bank is witnessing a “pricing pressure” in the market at present.

“There is a significant amount of irrational pricing. We have seen BBB (rated) entities get the same pricing as AA ones,” he said.

His colleague Shanti Ekambaram, who heads the retail business, said even though the mortgage loans segment witnessed a 22 per cent rise in the book, the bank has experienced a plateauing of growth in the segment.

She said demand for luxury housing continues to be higher, while the same for lower priced ones has been impacted, indicating that flat owners are having to rethink because of the increasing interest rates.

At a time when there are heightened concerns over unsecured lending, the bank is aiming for faster growth in this segment, joint managing director Dipak Gupta said, adding that its contribution to the overall book will rise to mid-teens from the present 10 per cent levels.

From an asset quality perspective, it showed an improvement with the gross non-performing assets ratio improving to 1.78 per cent against 2.34 per cent in the year-ago period and 1.90 per cent in the quarter-ago period.

Provisions came at Rs 147 crore compared to Rs 148 crore in the preceding quarter, leading Kotak to say that its credit costs are among the lowest in the industry.

The bank's overall capital adequacy came at 21.80 per cent as of March 31, 2023.

Among the subsidiaries, Bhatt said non-bank lender Kotak Prime saw a decline in the March quarter net at Rs 224 crore from Rs 313 crore in the year-ago period due to a change in accounting policies, while the choppy markets impacted its capital market-linked subsidiaries' businesses, while the asset management arm's profit jumped to Rs 192 crore.

Brokerage Outlook

HSBC Global Research expect KMB’s loan book to grow at CAGR of ~22% over FY21-23E. At CMP of ₹1,898, the stock is available at 4.7(x) standalone FY23E Adj. BVPS of ₹404. Valuing the standalone entity at 5.8xFY23E BVPS and subsidiaries valuation at ₹75; we arrive at a target price of ₹2,419. They recommend BUY with a potential upside of 27%.

KMB IN Current price: INR1,898.30 Target price: INR2,000.00 Up/downside: +5.4% . HSBC Global Research value Kotak Mahindra Bank using a sum-of-the-parts approach, valuing the core banking business using our updated Gordon growth model and the other businesses using peer multiples.

KMB has corrected from its recent peak and trades at 3.5x/30x FY23e consolidated BV/EPS, respectively. They estimate an 17% EPS CAGR over FY22-24e, 2% RoA and 12.6% RoE. Our target price of INR2,000 implies 5.4% upside.

Sustainability Report

It is our constant endeavour to conduct operations in an environment friendly manner. We are making conscious efforts to migrate from traditional banking practices to more environment friendly solutions, a step to significantly reduce our carbon footprint.

We have implemented multiple e-initiatives across the group. The Bank’s ‘Think-Green’ initiative encourages customers to sign-up for estatements and discontinue paper statements,thereby saving the environment.

Under an arrangement with the bank, Grow-Trees.com plants a tree for every e-credit card statement on behalf of our customers.

E-statements of Account Opening Forms under Financial Inclusion, SMS-based transaction details for corporate customers, etc. are some of the efforts undertaken by the Bank towards reducing paper usage.