Kotak Mahindra Bank's 4.7% NIMs a minor miss: Dipan Mehta

Ekta: Would the margin of 4.7 percent come as a little bit of a disappointment for you?

A: It so a minor miss over there and in any case the net interest margins (NIMs) are very rich. They are among the highest in the industry. So some amount of pressure is to be expected but overall one should expect the business momentum to pick up for the banking industry and Kotak per se.

The street is looking at the stock beyond the merger and what it can be derived from there and what kind of growth rates and how the balance sheet and the business should look post the merger because what we are seeing here is a merger of two healthy banks, two banks which have been quite aggressive over the past several years and it is a good fit in terms of geography as well as in terms of product mix. So that is where the street expectation is and that is why the valuation is at the levels it is at.

Ekta: How would you value the other consolidated business of Kotak? So, for example, if you look at Kotak Mahindra Prime, it is always within that range of around a Rs 120 crore in terms of profits. Securities has seen a marginal uptake this time of Rs 60 crore versus Rs 46 crore on a year on year basis and Rs 66 crore in the previous quarter and it has always been this sort of performance that we have seen from the subsidiaries of Kotak. How would you value that? Would that deter you in terms of the high valuations that we see for the consolidated entity?

A: No, it is just not a phenomenon of this particular quarterly number. If you see over the past several quarters and years, the banking operations, their standalone numbers have always significantly improved and what has always been lagging is the numbers of the subsidiaries especially the capital market subsidiary as well as the other subsidiary which does vehicle financing. So, clearly consumer lending, core banking operations, treasury options have done far better than the subsidiaries which is why if you see over the past five years. Their share has come down and it has to because those are in the highly competitive fields and they have intense competition in the areas which they are operating and on the whole the insurance business also has not shaped up, not just for Kotak but for the entire private sector insurance industry. It has not been one of the best outstanding performances of an industry per se. So, we are back valuing the company on its core banking operations and those are more or less in line but as I said the street will look beyond these numbers and there is a hold year excitement about the mergers and how scale will benefit the company forward. Already the PE has got re-rated upward because of the size and a relatively well managed company, very clean balance sheet and steady performer so a these things are in favour of Kotak Mahindra. Having said that, both Kotak and ING are companies in which we have invested, we and our clients, so to an extent our views may be biased.