Kotak Mahindra Bank’s underperformance of 50-130 per cent over peers in the last three years has made risk-reward incrementally favourable for the stock, CLSA said. 
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Kotak Mahindra Bank’s underperformance of 50-130 per cent over peers in the last three years has made risk-reward incrementally favourable for the stock, CLSA said. Foreign brokerage CLSA has upgraded Kotak Mahindra Bank (KMB) to 'Buy' from 'Outperform' earlier, with an unchanged target of Rs 2,080, as it felt the underperformance of 50-130 per cent over peers in the last three years has made risk-reward incrementally favourable for the stock.
CLSA noted that KMB's valuation premium to ICICI Bank and HDFC Bank has fallen to 10-20 per cent and even if one discounts the CEO transition, some premium for KMB is justified due to higher growth.
"With just 2 per cent market share and a formidable banking franchise, we expect Kotak to be a growth leader among large banks. Liability granularity has improved with a low cost of funds gap with peers, but the bank will need to deliver liability and asset growth together, CLSA said.
CLSA expects KMB to deliver 20 per cent earnings growth over FY22-25. It said CEO transition in December 2023 remains an overhang but clarity should emerge over the next 3-4 months. M&As, especially relating to liabilities, could be accretive, CLSA said while citing an example of ING Vyvsa.
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"Our analysis suggests an IDBI Bank takeover at a 25 per cent premium would be 30 per cent book accretive and 15-18 per cent earnings accretive, providing strong M&A optionality," CLSA said.
CLSA said Kotak's branch efficiency is best in class and branch addition targets are moderate. High opex growth was due to spending on digital and retail asset build up, it said while expecting cost growth to moderate from FY24, leading to cost income improvement.
CLSA said Kotak's loan growth has picked up in the past 18 months to 20 per cent-plus, driven by the higher willingness of the management to lend and an improvement in cost of funds, which allows Kotak to compete in product segments like mortgages. CLSA said Kotak can deliver higher-than-peer growth over the next decade -- it sees 3-5 per cent higher growth than peers over FY23-25.
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