Kotak Mahindra Bank vs Axis Bank: A race to the Top

An efficient, well-structured, developed banking system acts as the backbone of any economy as it contributes to increased efficiency of the economy by mobilizing savings and allocating them to higher return investment. 

The development of the Indian banking industry has three distinct milestones. The first milestone marks the establishment of the Bank of Hindustan, the first bank in India after the Banking Regulation Act of 1949 was passed. The second phase saw the nationalization of banks in 1969, while the post-1991 reforms constituted the third development phase of the Indian banking industry. 

The Banking Sector of India

The Indian banking system comprises 22 private sector banks, 12 public sector banks, 56 regional rural banks, 96,000 rural cooperative banks, 1485 urban cooperative banks, and 46 foreign banks, as well as cooperative credit institutions. Also, all these banks together have a network of 213,145 ATMs.

• In FY18-FY21, the total assets across the banking sector (including private and public sector banks) grew to ₹198 lakh crore. 
• In FY21, the total assets in the private and public banking sectors amounted to ₹70 lakh crore and ₹128 lakh crore, respectively.
• During FY16-FY21, bank credit witnessed an increase of 0.29% CAGR. 
• The Banks reported deposits of ₹ 162 lakh crore (US$ 2.17 trillion) as of 31 December 2021.

After discussing the cumulative report card of all private and public sector banks, let's have a face-off between the two of the biggest private sector banks in India to help investors pick their best option.

Company Overview of Kotak Mahindra Bank

A flagship company of the Kotak Group, Kotak Mahindra Bank is one of the fastest-growing financial institutions in India. Did you know it was the first NBFC in India to convert into a bank after the group received a banking license from the Reserve Bank of India (RBI) in February 2003?

The Bank offers a host of banking, treasury and other financial services, including commercial banking, stock broking, investment banking, vehicle finance advisory services, asset management, and general and life insurance services. As of 31st December 2020, the Bank was operating through a network of 1603 branches and 2573 ATMs across the country.

Company Overview of Axis Bank

Axis Bank started its operations in 1994 and is one of the list-toppers among India's largest private sector banks. The Bank offers a comprehensive bouquet of financial services across segments such as MSME, Agriculture, Large and Mid-Corporates, and Retail Businesses. Further, the Bank boasts an extensive network of 4,758 branches (including extension counters), 5,972 cash recyclers, and 10,990 ATMs spread across the country as of 31 March 2022. In addition, the bank has overseas operations distributed over eight international offices having branches in Dubai (at DIFC), Gift City-IBU, and Singapore. 

Kotak Mahindra Bank VS Axis Bank: Stock comparison

While both banks are market giants in their respective areas of expertise, we have come up with various ratios and parameters from an investor's point of view to help them make their investing decisions. 

Presented here are some ratios and parameters atypical of their performance in the Indian stock exchanges: 

ROE

ROE, or Return on Equity, is a parameter for estimating a company's financial performance. It is derived through the formula: Net income/Shareholders' equity. 

The greater the ROE, the better the company's management is in generating income and return from equity financing. As of 19 July 2022, Kotak Mahindra Bank had an ROE of 12.47% against the 7.06% ROE of Axis Bank.

Let's check out the five-year ROE data for Kotak Mahindra Bank and Axis Bank:

Kotak Mahindra Bank                                           

Axis Bank

ROA

The ROA or Return on Assets is a financial ratio that reflects a company's profitability concerning its total assets' earning generation ability. A higher ROA indicates that the company is better able to manage its balance sheet to generate profits. 

The ROA of Kotak Mahindra stood at 1.87%, while the ROA of Axis Bank was 0.69% as of 19 July 2022. 

Here's the 5-year data for the banking majors in question: 

Kotak Mahindra Bank                                                   

Axis Bank

P/E

The P/E, or price-to-earnings ratio, measures a company's share price with its earnings per share. A company with a higher P/E ratio could mean either the stock is overvalued or the investors may have impractical growth expectations. 

The current P/E value (as of 19 July 2022) of Kotak Mahindra Bank is 42.69, while AXIS Bank is doing better with a P/E value of 16.5. 

Check out the five-year charts of P/E ratios for the respective stocks.

Kotak Mahindra Bank                                                                             

Axis Bank

P/B

The P/B or price-to-book value ratio is a comparative analysis of the market vs book value of the company. Let's understand it with a simple example. Imagine a company that sells all its assets and pays off all its debts. The amount left after the adjustment is called the company's book value. 

A stock with a P/B ratio of 2 indicates that shareholders are paying Rs 2 against a book value of Rs. 1. The higher the P/B, the more expensive the stock. 

The P/B ratio of Kotak Mahindra Bank as of July 2022 is 5.09, whereas, for ICICI Bank, it is 1.87.

Kotak Mahindra Bank                                                                             

Axis Bank

EPS

EPS or Earnings per Share is among the most important parameters to determine a company's profitability on an absolute basis. EPS equates to the measure of the net income divided by the available shares. We advise using a weighted average number of common shares over the reporting term for more accurate results as the number of shares tends to change over time.

The EPS for Kotak Mahindra Bank is Rs. 43.18, and for Axis Bank, it is Rs. 42.41.

5 Year CAGR return

Compound Annual Growth Rate, abbreviated as the CAGR, calculates the average annual growth of your investments over a given period. It shows you the average rate of return you are earning every year. 

The 5-year CAGR return of Kotak Mahindra Bank is 13.5%, while it is 4.9% for Axis Bank.

Kotak Mahindra Bank                                                         

Axis Bank

Net Interest Margin (NIM)

NIM, or the Net Interest Margin, shows the effectiveness of a company's investment decisions (especially banking and financial institutions). The formula used to calculate NIM is as follows: 

Net interest margin = (Investment returns – interest expenses) / average earning on assets

The graph below shows the NIM data for both banks in the last 5 years. 

Kotak Mahindra Bank                                             

Axis Bank

In addition, another parameter that is significant in defining a company's fundamentals is the CASA ratio, which is currently 60.45 % and 44.92% for Kotak Mahindra Bank and Axis Bank, respectively. If we look at the CASA ratio, Kotak Mahindra Bank is doing better at the moment.

The Bottom Line

While both banks are among the heavyweights of the Indian private banking sector, Axis Bank looks to have comparatively better fundamentals from a numerical standpoint. The P/E ratio, in particular, favours Axis Bank, which is much undervalued compared to Kotak Mahindra Bank.

That was all about Kotak Mahindra Bank and Axis Bank. So, what do you think about our analysis? Share your views in the comment box. For more such analysis and stock news, stay tuned to Ticker by Finology and get the best screening, equity research, and company analysis tool built by Finology. 

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*Disclaimer: The stocks discussed above are here to make you understand the concept and are not the recommendations of Finology.