Any investor who has ever bet on Kotak Mahindra Bank (KMB) would not have regretted it. In the last 10 years the stock has returned 1,000%, in five years 265% and in the last three 145%, a stunning outperformance by any yardstick.
If the stock has skyrocketed to new highs over the past decade, its because Uday Kotak has his feet firmly on the ground. The private sector lender’s balance sheet may not have grown at a breathtaking pace but it’s a clean one. By March 2017, it would be nudging R2.25 lakh crore. Slow and steady, that’s the KMB style.
That’s why Kotak has not bought every business that was offered to him, attractive as they may have been. He has waited for the right opportunity and cashed in on it. Like buying ING Vysya Bank. The acquisition will not just add value to the existing businesses of lending, asset management, insurance and investment banking, it will help further de-risk the model thanks to reach and revenue streams. In another three years, KMB should be clocking an annual profit of R5,000 crore.
Kotak knows the value of a diversified construct in a country like India where it’s hard to scale up a single business like a Templeton may have done overseas. He’s convinced a diversified financial services model is the best way to achieve scale and has stayed close to this strategy.
But even this diversification is carefully thought out, as reflected in the bank’s lending portfolio.
KMB, for instance, has not strayed into infra financing because Kotak is very clear every business must be evaluated on a risk-return matrix. Instead, he is scaling up in areas such as SME, which has got a boost with the ING Vysya acquisition.
The additional reach the ING Vysya has brought with it — the combined network has 1,300 branches — will allow the team to sell products to a larger customer base.
While acknowledging the rapidly growing importance of technology and convinced one must offer cutting-edge technology, Kotak believes it’s only an enabler. Accompanying this must be a superior product proposition and customer service.
That thinking appears to have paid off — KMB’s savings accounts have grown at 40% plus over the last four years against the industry average of 15-20%. And even while KMB is working hard at its digital offerings, it hasn’t lost sight of the realities on the ground and the fact that customers need the comfort of branches.
The tie-up with Bharti Airtel for a payments bank has been a considered alliance. Kotak believes Bharti’s 250-million subscriber base could be a good catchment fro KMB, maybe not immediately but definitely in the future. That’s Kotak for you, thinking long-term and planning carefully, never in a rush. And time is on his side.