Fundamentally, regional banks are strong liability franchises in their micro markets, and in Kotak’s case we have highlighted it would need to increase liability mobilisation with its strong growth ambitions, and hence a merger would be positive, the brokerage firm said.
On Monday, the private sector lender denied media reports suggesting it is in talks with Kotak Mahindra Bank for a merger.
“We would look at Kotak more favourably if it is able to add to its liability strength through inorganic routes,” CLSA said, adding that Federal Bank’s net worth/PAT in FY22 and consensus numbers for FY23/24 are 24-25 per cent of
’s FY23/24 net worth/PAT.
“Dilution for Kotak at the current price would be 7 per cent and even assuming a 20-40 per cent premium, dilution for Kotak would be more than 10 per cent. We estimate the deal to be 13-16 per cent earnings/book accretive for Kotak even after factoring in some material premium,” the brokerage firm said.
The brokerage has an outperform rating on Kotak Bank with a target price of Rs 1,918.25.
Shares of Federal Bank rallied over 6 per cent in the last five days and were trading flat at Rs 123.35 today.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)