Uday Kotak led-Kotak Mahindra bank has raised successfully of Rs 7,442 crore by issuing around 65 million shares of the lender at a discounted price of Rs 1,145 per share via a Qualified Institutional Placement (QIP). Shares of the private lender went up by 4% during the first hours of trade, in line with the equity markets that were overtly joyous on Monday. Although, the bank’s capital raising plans, which also help the promoters bring the shareholding down, is going to affect the Return On Equity (RoE), according to brokerage and research firm Emkay Global. The already subdued RoE will see a further reduction after the bank’s QIP, said Emkay in a research note.
Kotak Mahindra Bank’s QIP that saw marquee investors as like Invesco Oppenheimer invests to select up around 52 lakh shares, that followed by Canada pension account Investment Board which buying 46 lakh shares, and also ICICI Prudential Mutual Fund getting hands-on close to 41 lakh shares. “The capital raise will further reduce the bank’s already depressed RoEs thanks to the impact of Covid-19 to ~11% standalone over FY21/FY22E from 13% in FY20, before improving to 12% in FY23E as growth accelerates,” as Emkay Global told. The brokerage firm cut its target price from Rs 1,290 earlier to Rs 1,285 per share with a Hold Rating on the tip. This priced at Rs 1,249 per share, as Kotak Mahindra Bank is the costliest bank stock among the Bank Nifty constituents.
RoE is the profitability indicator for the shareholders, that help them assess how much profit is generated on every penny invested by them in the stock. RoE is used by investors to ascertain how the company’s management is effectively using assets to generate profits. Brokerage firm Motilal Oswal has a neutral view on this stock with a target price of around Rs 1,350, however, RoE estimates have been pegged at 11.4%.
Kotak Mahindra Bank is a safe harbor in the current risk-off environment, as per Emkay Global. The report adds that the lender has a strong liability or capital buffer, conservative underwriting, and top pedigree management. Some of the analysts did sound the bell of caution when Uday Kotak told his bank would be careful in extending loans, as the banks continue to stay risk-averse. Kotak Mahindra Bank already had a strong capital position, with standalone or consolidated CET 1 at 17.3%/19.1%. After Rs 7,442 crore raised through the QIP, the CET 1 will rise by 282bps/232bps that supported Q4 RWA to 19.9%/21.4%, being the very best among large banks.