Jignesh Shial, banking analyst at IDBI Capital says as far as Kotak Mahindra Bank goes accumulate is the call that he is recommending to his clients. He says one parameter where Kotak would be leading Axis Bank would be return on assets (RoAs). RoA of Kotak is above 2 percent and whereas for Axis it would be 1.8-1.9.
Below is the verbatim transcript of Jignesh Shial’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Sonia: Big move on Kotak Mahindra Bank this morning, it is up 6 percent. We know the positives of this deal, we know the strategic fit, etc but for an investor who holds on to Kotak would you recommend accumulating more and what kind of a target price would you have 12 months from now on Kotak Mahindra Bank?
A: It is a little early to give a target price because we have to exactly understand how this merger takes place and what kind of consolidation they are planning to do. However, accumulate is definitely a call that we would be recommending to our clients for Kotak Mahindra Bank, the reason being this is strategically a very right kind of acquisition that Kotak has done at this point of time.
ING Vysya had been a CASA rich bank, has a relatively smoother kind of an asset quality trend and it has been largely present across southern India where Kotak wanted to expand its presence. So, it seems pretty decent kind of acquisition at a decent valuation. So, it looks a win-win situation for Kotak Mahindra Bank and it would be a clear winner over a period of mid to long-term.
Latha: Is it not getting overpriced, it is a great buy but at Rs 1200 should one buy it?
A: One parameter where Kotak would be leading Axis Bank that would be return on assets (RoAs). RoA of Kotak is above 2 percent and whereas for Axis it would be 1.8-1.9. Secondly, whatever is the combined entity that we are seeing, basically we are just summing up the numbers; the kind of consolidation from the management point of view or which Kotak would be able to do it that would be much better than just adding up the numbers.
Secondly, expansion is just adding up what ING has done it. Kotak will have its say and what kind of expansion they would be bringing in, for example, ING never had any asset quality issues apart from one or two quarters where there had been some surge but apart from that the book is pretty stable. They have a large SME, MSME portfolio still they were able to manage pretty well in the last couple of years. So, now Kotak would be able to take that advantage with it and then still it would be able to expand its presence across in the different products that Kotak Bank as a general offers to the ING customers. That will also be bringing more advantage to Kotak Bank as such and would definitely bring in more revenues and the kind of improvement in the RoAs.
So, I agree that on the market cap side it would be similar to what Axis is and on a valuation front it might be expensive to Axis but on the RoA side it is more comfortable. Asset quality part also it seems much more comfortable to go with Kotak Mahindra Bank. It is just the beginning so I won’t be saying the valuations are not expensive but still looks better.
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