What's brewing in Kotak Mahindra Bank?

Despite Nifty & Sensex heading towards their pre-covid peaks, Bank Nifty is still down 12% from its Feb 2020 levels, with most private sector banks still down 20%-40%, except for two FII darlings, HDFC Bank and Kotak. HDFC Bank sailed through a CEO change, but what justifies Kotak PBV of 4x, ahead of HDFC Bank’s 3.5x?

Is it Kotak’s strong Q2FY21 performance, with highest CASA ratio of 57% (way higher than even SBI’s 45% CASA ratio) and NIM of 4.58%, with asset quality also under check at 0.7% net NPAs.   

Another buzz is merger of Indusind Bank with itself. Such M&A rumours are routine for Kotak, which was earlier speculated to take over Yes Bank, RBL Bank and even Lakshmi Vilas Bank or even being on the other side of the table with Warren Buffet’s Berkshire Hathway looking to invest in Kotak!

Coming back to the current potential target of Indusind – does it offer any attractive moat, either in the form of vehicle finance or micro loans? Or is the 1.5x PBV or 0.5% net NPA? Promoter stake of 26.05% is largely in compliance to RBI regulations of 26% for Kotak, hence doesn’t appear to be a strong case for a Kotak-Indusind merger.