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The time is ripe for Kotak Mahindra Bank to buy Axis Bank, says a report by brokerage firm Nomura Financial Advisory Services.
On Wednesday, Axis Bank shares were trading down 1.59 per cent at Rs 537.30 after hitting a high of Rs 552 and a low of Rs 534.10 on the BSE in a negative market. Kotak Bank shares were trading 0.38 per cent or Rs 4.20 higher at Rs 1,117.80 on the BSE at about 12 pm.
The brokerage’s call comes in the wake of Axis Bank CEO Shikha Sharma deciding to cut her tenure to the end of this year . Sharma was appointed at Axis Bank in June 2009 by then Chairman PJ Nayak. On Monday, the bank in a filing to the bourses, announced that she has decided to cut down her fourth term and quit on December 31, 2018.
“With a very short time left in the CEO’s term at Axis Bank, RBI’s pressure on Axis Bank’s management and with an asset quality clean-up exercise continuing, we believe this is the best opportunity for Kotak Bank to acquire or merge with Axis Bank,” the brokerage said.
A likely deal between Kotak and Axis will make the combined entity the second largest private bank in the country in terms of loans and the largest in terms of branches.
"Our assessment suggests that Axis Bank will have to look for an external CEO. We believe this presents a great opportunity for Kotak Mahindra Bank to buy Axis Bank, which has got one of the largest liability/retail asset franchises," it said in a research report.
"From Axis Bank’s perspective, we believe there will be limited push-back this time for any merger, given the loss of confidence that the regulator has expressed by not approving the renewal of the CEO’s term and a vacuum in top management," Nomura said.
Nomura said that it was an opportune time for Kotak since Axis Bank had ramped up on the NPA recognition process and the majority of the bad news was now known. "Since the time of the last merger talks, Kotak Bank’s stock has outperformed Axis Bank’s by 30 per cent, making the acquisition more reasonable," it said.
“In case of M&A, the deal would be highly earnings per share-accretive for Kotak Bank even after paying a meaningful premium to Axis Bank shareholders,” the brokerage added.
Nomura also said Kotak Bank would gain liability and retail asset size enough to rub shoulders with HDFC Bank. Importantly from the promoter’s perspective, the acquisition should help in diluting the promoter’s stake down to the requirements stipulated by the RBI. The RBI requires promoters of private banks to bring down their holding to 15 per cent within 12 years of commencement of operations. The central bank has allowed Kotak Bank’s promoter Uday Kotak to bring down his holding in the bank to 15 per cent by March 2020. Uday Kotak and his family currently hold 30.06 per cent stake in the company.
(With inputs from agencies)
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