According to Bloomberg data, the Kotak Mahindra Bank currently commands a price-to-book value (P/BV), which is as high as 4.5 times compared to 2.7x for HDFC Bank and 1.6x for ICICI Bank.
Kotak Mahindra Bank, has comfortably pipped all lenders in the world to become the most expensive bank stock, a crown which until recently belonged to none other than HDFC Bank.
According to Bloomberg data, the Kotak Mahindra Bank currently commands a price-to-book value (P/BV), which is as high as 4.5 times compared to 2.7x for HDFC Bank and 1.6x for ICICI Bank. The massive sell-off in HDFC Bank stock has dragged down its valuation by 40% with respect to its five-year average. The bank stock has corrected as much as 32.4% since January against 25.2% fall witnessed in the benchmark Nifty50.
Interestingly, among the 40 biggest lenders globally, three Indian private lenders – Kotak Mahindra Bank, HDFC Bank and ICICI Bank – feature among the top six most expensive bank stocks. Only banks with a minimum market capitalisation of $25 billion have been included in the sample.
The deposit base of Kotak Mahindra Bank grew 16.4% y-o-y to Rs 2.62 lakh crore during the full year FY20 driven by 24.5% growth in CASA. Consequently, the CASA ratio rose 367 basis points to 56.2%, which is highest in the industry.
Darpin Shah, institutional research analyst at HDFC Securities, said, “Kotak Mahindra Bank’s strong capital base, stable and granular deposit franchise and superior underwriting practices make it one of the best placed in the sector.”
Kotak Mahindra Bank, which plans to raise about Rs 7,500 crore through fresh share sale also enjoys the highest common equity tier 1 capital ratios among big lenders. The tier 1 capital ratio of the bank stood at 17.3% as of March 2020 compared to 17.2% of HDFC Bank.
Analysts pointed out, a fund-raise, which will dilute shareholder’s return is not undesirable but it would help to bring down promoter stake and further strengthen the bank’s already strong balance sheet. As of March 2020, the bank’s promoter Uday Kotak held 29.64% of total paid-up equity. Between FY16 and FY20, the book value per share of Kotak Mahindra Bank rose at CAGR of 22.85% to Rs 256.23 whereas the book value of HDFC Bank increased by 20.3% to Rs 311.83 over the past five years, Bloomberg data shows.
Jefferies in April had removed both HDFC Bank and ICICI Bank from its Asia ex-Japan long-only portfolio, citing the strict lockdown in the country may cause a negative credit cycle for the nation. The foreign brokerage inducted Kotak Mahindra Bank into the portfolio with an initial 3 ppt weighting.
JP Morgan, which has an overweight rating on Kotak Mahindra stock, observed “We revise our FY21 and FY22 EPS estimates by 2% and 8%, respectively, while factoring in slippages of 2.2% and 1.6% in FY21 and FY22. Our SOTP (sum-of-the-parts)-based price target is Rs 1,350 valuing the bank at 3.3x FY21E consolidated P/BV and 26x consolidated FY21E P/E.” Shares of Kotak Mahindra Bank closed Thursday’s session at Rs 1,150.25, down 0.85% on NSE.