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Kotak Mahindra Bank in elite club of private banks even before ING Vysya merger

Although Kotak Mahindra bank is set to emerge as 4th largest private sector bank after its merger with ING Vyasya bank, in terms of market value, it has maintained a similar ranking, each year since 2011.

 

Uday Kotak, Executive Vice Chairman and MD of Kotak speaks during a press conference announcing the merger between Kotak Mahindra Bank and ING Vysya Bank in Mumbai. (PTI)
Uday Kotak, Executive Vice Chairman and MD of Kotak speaks during a press conference announcing the merger between Kotak Mahindra Bank and ING Vysya Bank in Mumbai. (PTI)

Although Kotak Mahindra Bbank is set to emerge as the fourth largest private sector bank after its merger with ING Vysya Bank, in terms of market value, it has maintained a similar ranking, each year since 2011.

Since the last four years, KMB has stayed as the fifth most valued banking stock and fourth most valued private baking lender after HDFC bank, ICICI Bank and Axis Bank.

While the difference between its m-cap to that of Axis bank, the third largest private sector lender, has swayed significantly over the period, in the last five years, KMB has reported a higher compounded annual growth rate in expansion of its market value (27%) compared to Axis Bank (23%). During the period, the stock has jumped three-fold compared to a 148% growth in Axis Bank shares.

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While historically, KMB stock has traded at elevated valuations, analysts deem the current valuations expensive due to challenges faced by the merged entity. Accrding to Ambit Capital which believes that the merger is 5% EPS accretive for KMB, the bank would have to deliver EPS growth of 28-30% to justify current valuations that equals 25 times one-year forward consolidated post-merger EPS.

KMB has always remained the second most expensive stock- after HDFC bank. On Friday, on hitting an all-time high of R1260.9 and ending the session at R1199.65, the stock traded at a trailing price to book value ratio of 4.84 within shying distance from the P/BV commanded by HDFC bank, 5.05.

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