A Comparative Study On Pre-merger & Post

merger Performance of Kotak mahindra Bank

(with ING Vysya Bank)

Submitted By: Santanu Saha

MBA (Financial Management)
University of Calcutta
Introduction & Definition:

Merger have become a major strategic tool for achieving synergy and it is imperative to
avoid the possibilities of small banks from becoming the target of huge foreign banks which
are expected to come to India. There are two types of Mergers that have been experienced
in India: the forced Mergers and the voluntary Mergers. The forced Mergers are mainly
initiated by RBI and their main aim is to protect the interest of the weak banks.
The voluntary merger takes place with the market motivation. The merger of Kotak
Mahindra Bank-Ing Vysya Bank is the 8th voluntary merger and the latest in India after the
merger of ICICI Bank-Bank of Rajasthan in the year 2010.

 Definition of Merger
Merger is defined as combination of one or more companies into a single company
where one survives and the other lose their corporate existence. The survivor
acquires the assets as well as liabilities of the merged company.
Objectives of the Study:
The objectives of the study areas follows:
 To make a comparative study between Pre & Post Merger – i) Balance Sheet
ii)Profit & Loss statement , iii) Shareholding Pattern of the acquiring company.
 To show the comparison between Pre & Post merger ratios of the acquiring company.

 Impacts of the deal on the customers, employees and services of the merged bank.

Methodology of the Study:

 Data Collection
The study is based on secondary data and the data is collected from secondary sources such as

 Annual reports of the Acquiring Bank

 Websites of the Bank
 Economic Times (https://economictimes.indiatimes.com/)
 Business Standard (https://www.business-standard.com)
 Wikipedia (https://www.wikipedia.org/
 Methodology
Simple tables, graphs ,percentages and various financial ratios has been used to compare and analyse
the pre & post merger financial performance of the Bank.

Limitations of the study

The study is purely based on secondary data which are taken from the internet only and therefore any
uncertainty can not be denied in the data used for the analysis.
Also, despite making a decent attempt to analyse the pre & Post merger financial performance it is
difficult to narrate all incidents and changes brought up due to the merger.
Background of the Acquiring and the Target Bank
Kotak Mahindra Bank Limited
Kotak Mahindra Bank Limited Established in
1985, Kotak Mahindra Finance Capital
Management Limited, the flagship company of
the Kotak Group, started off as a non-banking
financial services company, initially providing
financing for the purchase of automobiles. In
2003 it became the first ever NBFC to be
converted into a bank.
With a portfolio of over 15 subsidiaries across
India and the world and a few joint ventures,
Kotak has spread its businesses wide across the
market and country with over 600 operating
branches. Currently, Kotak is primarily promoted
by Mr. Uday Kotak who continues to hold about
39.69% of the capital interest and is listed on the
NSE, BSE and LSE.
ING Vysya Bank Limited
Established in 1930s, ‘Vysya Bank’ comes with a
long heritage of banking in the trade
communities of south India. In 2002, it became
the first ever Indian bank to merge with a foreign
one, when it officially announced its merger with
the Dutch banking giant ING Group, which took a
controlling stake in the bank. The bank has over
time grown a strong presence in south India with
over 500 branches in the south. It has also,
because of its ties with the ING Group, grown its
presence abroad with a presence in over 5
countries.
Before the Deal, the ING Group promoted ING
Vysya, holding a 44% equity stake in the bank.
The bank majorly used to deal in retail, private
and wholesale banking services was also listed on
the BSE and NSE.
Why Merger

 Though not officially announced by the Group, there have been numerous reports since 2013 of
INGs intention to divest and exit India . ING which took a hit in the Global recession was heavily
indebted to the Dutch government. This was followed by the sale of its INR 11 Billion stake in ING
Vysya Life Insurance in late 2013, and more reports of ING’s plan to sell its stake in ING Vysya.

 In May 2014, Uday Kotak received a directive from RBI to reduce his shareholding in the Bank to
20% (from 45.3% at that time) by December 2018. He was to reduce it to 30% by December 2016
and Pursuant to the Deal, the promoter’s stake in the Company will be reduced to 33% putting him
well on his way to meet the requirements of the directive.

Consideration

As part of the amalgamation, 725 shares of Kotak were issued in lieu of every 1000 shares of ING Vysya
to every shareholder of ING Vysya. Fractional shares were not granted and were instead pooled, sold
and cash consideration from the sale was distributed to shareholders proportionate to their fractional
entitlements.
Shareholding Pattern

Pre-Merger Kotak Pre-Merger Ing Vysya

40.02% 42.51%
57.49%
59.98%
Merge

Swap
Ratio
725 FIIs 25.98%
FIIs 36.85% 1000 Mutual Funds 13.43%
Mutual Funds 1.65% Financial Inst. 1.76%
Financial Inst. 0.21%
promoter
Corporate Bodies 5.36%
Foreign Banks 4.25% group
Foreign Bodies 2.04%
promoter Individuals 8.14%
Corporate Bodies 3.30% group Others 1.82%
Individuals 10.27%
Others 1.41% Public share Public share
holding holding
Shareholding Pattern (Contd.)

Post-merger Shareholding in Kotak

6.48%

promoter
group
33.99%
Public share
holding
FIIs 25.98%
Domestic 19.12% 59.53% Ing group
ING Group 6.83%
Analysis of Balance Sheet

Total Liabilities & Assests

300000
264933
250000
214590
200000 192260

150000
106012
100000 83694 87585

50000

0
FY 13 FY 14 FY 15 FY 16 FY 17 FY 18

Total Liabilities & Assests

Analysis of Balance Sheet (Contd.)

Movements of assets
180000

160000

140000 Cash & Cash

equivalents
120000
Investments
100000

80000
Other Assets
60000

40000

20000

0
FY 13 FY 14 FY 15 FY 16 FY 17 FY 18
Analysis of Balance Sheet (Contd.)
60000
Government Securities
50000

Investment Items
40000 Shares

30000 Debentures and Bonds

20000 Subsidiaries and Joint

Ventures
10000
Certificate of Deposits (CD),
0 Commercial Pap
2013 2014 2015 2016 2017 2018

Cash & Cash equivalent items

16000
14000 Cash in hand
12000
Balances with RBI in
10000 current account
8000 Balances with Bank In
India
6000
Monet at call and short
4000 notice
2000 outside India
0
2013 2014 2015 2016 2017 2018
Analysis of Balance Sheet (Contd.)

Movements of Liabilities
250000

Net Worth
200000
Total Debt
150000
Other Liabilities &
Provisions

100000

50000

0
FY 13 FY 14 FY 15 FY 16 FY 17 FY 18
Analysis of Balance Sheet (Contd.)

100000
90000
80000
70000

Deposit Items
Demand deposits
60000
50000
40000 Savings deposit
30000
20000 Term Deposit
10000
0
FY 13 FY 14 FY 15 FY 16 FY 17 FY 18

18000
16000
14000

Net Worth Items

12000 Capital
10000 Capital Reserve
8000 Special Reserve
6000 share premium
4000 Balance in pl
2000
0
FY 13 FY 14 FY 15 FY 16 FY 17 FY 18
Analysis of Statement of Profit & Loss
Net Profit
5000.0

4000.0

3000.0

2000.0 Net Profit

1000.0

0.0
FY 13 FY 14 FY 15 FY 16 FY 17 FY 18

25000

20000

15000
Total Income
Total Expense
10000

5000

0
FY 13 FY 14 FY 15 FY 16 FY 17 FY 18
Analysis of Statement of Profit & Loss (Contd.)
25000

20000

15000
Interest Income
10000 Non-interest Income

5000

0
FY 13 FY 14 FY 15 FY 16 FY 17 FY 18

12000

10000
Interest Expenses
8000

6000 Operating Expenses

4000
Provisions and
2000 Contingencies

0
FY 13 FY 14 FY 15 FY 16 FY 17 FY 18
Analysis of Statement of Profit & Loss - EPS

profit after tax (In Crore)

5,000
4,000
3,000
2,000
1,000
-
FY 13 FY 14 FY 15 FY 16 FY 17 FY 18

Weighted average number of equity Weighted average number of equity

shares (For Basic EPS) shares (For Diluted EPS)
2,000,000,000 2,000,000,000

1,500,000,000 1,500,000,000

1,000,000,000 1,000,000,000

500,000,000
500,000,000
-
-
FY 13 FY 14 FY 15 FY 16 FY 17 FY 18
FY 13 FY 14 FY 15 FY 16 FY 17 FY 18
Analysis of Statement of Profit & Loss - EPS (Contd.)
Basic EPS Diluted EPS
30 30
25 25
20 20
15 15
10 10
5 5
0 0
FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18

Years FY 13 FY 14 FY 15 FY 16 FY 17 FY 18
Weighted average number of equity shares
(For Basic EPS) 7433,04,984 7658,21,581 7711,40,159 18291,84,376 18371,85,095 18960,49,700
Effect of potential equity shares for stock
options outstanding 28,16,120 12,51,038 18,54,016 41,34,235 20,13,926 25,72,354
Weighted average number of equity shares
(For Diluted EPS) 7461,21,104 7670,72,619 7729,94,175 18333,18,611 18391,99,021 18986,22,054

profit after tax (In Crore)

1,361 1,506 1,866 2,090 3,412 4,084

Basic EPS
18 20 24 11 19 22

Diluted EPS
18 20 24 11 19 22
Analysis of Ratios

Profitability Ratios
FY 14 FY 15 FY 16 FY 17 FY 18
Return on assets(%) 1.75 1.93 1.40 1.68 1.70
Return on Equity(%) 13.83 14.13 10.98 13.23 12.55
Return on Capital employed(%) 12.73 14.57 13.32 13.85 13.47
Net profit margin 17.13 19.19 12.75 19.27 20.68
Liquidity Ratios
FY 14 FY 15 FY 16 FY 17 FY 18
Current ratio 0.03 0.02 0.07 0.06 0.05
Quick ratio 17.39 14.83 15.61 18.09 19.49
Efficiency Ratios
FY 14 FY 15 FY 16 FY 17 FY 18
Net interest margin 0.04 0.04 0.05 0.04 0.04
Asset turnover 0.11 0.1 0.12 0.09 0.09
Loans turnover 0.17 0.16 0.18 0.14 0.13
Debt coverage Ratio
FY 14 FY 15 FY 16 FY 17 FY 18
Loan to deposit ratio 4.68 5.13 5.07 4.86 4.69
Debt equity ratio 5.86 6.15 6.66 6.46 5.81
Profitability Ratios

16 14.57
12.73 13.85 13.47
14 13.32
14.13 Return on assets(%)
12 13.83 13.23
12.55
10 10.98
Return on Equity(%)
8 7.84
5.84 Return on Capital
6 5.21 5.19 4.84
employed(%)
4
1.75 1.93 1.68 1.7 Net profit margin
1.4
2
0
FY 14 FY 15 FY 16 FY 17 FY 18

Formula:
• ROA = Annual net income/Average total asset
• ROE = Net income/ Shareholders equity
• ROCE = EBIT/Capital employed
• Net profit margin = Net income/Total revenue
Liquidity Ratios

25
19.49
20 17.39 18.09
14.83 15.61
15
Current ratio
10 Quick ratio

5
0.03 0.02 0.07 0.06 0.05
0
FY 14 FY 15 FY 16 FY 17 FY 18

Formula:
• Current Ratio - Current assets /Current Liabilities

• Quick Ratio – (Current Asset-Prepaid expenses-Inventory)/ Current Liabilities-Bank

overdraft)
Debt Coverage Ratios

7
6 6.66 6.46
6.15
5 5.86 5.81
5.13 5.07
4 4.68 4.86 4.69
Loan to deposit ratio
3 Debt equity ratio
2
1
0
FY 14 FY 15 FY 16 FY 17 FY 18

Formula
• Loan to Deposit Ratio = Total Loan/Total Deposit

• Debt Equity Ratio = Total outside liability/Shareholders Equity

Efficiency Ratios

0.20 0.18
0.18 0.17
0.16 Net interest
0.16 0.14 margin
0.14 0.13
0.12
0.12 0.11
0.1 asset turnover
0.10 0.09 0.09
0.08
0.06 0.04 0.04 0.05 0.04 0.04 loans turnover
0.04
0.02
0.00
FY 14 FY 15 FY 16 FY 17 FY 18

Formula:
• Net Interest Margin = Net interest Income / Average earning asset

• Asset Turnover = Revenue / Average Total Asset

• Loan Turnover = Revenue / Outstanding Loans

Benefits of the Merger

ING Kotak
Branche ING Kotak Branches Vysya Kotak (Merged)
s Vysya Kotak (Merged) Mumbai 36 88 124
Wider
coverage and West 12.04% 46.02% 29.98% Delhi NCR 34 90 124
increase in
branch Bangalore 40 20 60
North 20.07% 34.01% 27.02%
density
Hyderabad 20 8 28
South 64.05% 14.98% 37.97%
Ahmedabad 5 26 31
East 3.84% 4.99% 5.02% Chennai 13 14 27
Total Pune 4 21 25
Branche Kolkata 10 12 22
s 573 641 1214
Total 162 279 441
Cost
efficiency
Customer wallet share was increased due to the merger with ING vysya. Kotak Mahindra
and Increase
Bank has got new customers through INGs customer base . This would improve the
in Customer revenue of the bank as well as the deposits. It could have taken a few years to increase
Wallet Share the deposit level to this extent . This also saved time and cost of Kotak Mahindra Bank.
Benefits(Contd.)

 Experience, expertise and diversity of employees is a significant asset for ING Vysya.
Employees:  ING Vysya employees will have growth opportunities across Kotak group.
 Kotak employees would be part of a larger and deeper pan India franchise.

 ING Vysya’s diverse customer segments with more than 2 million customers, will now
have access to Kotak’s wide product suite across financial services
Customers:  “Digital” a key strategic driver for both banks will be a priority for the merged Kotak
entity – ING Group, which has a successful global experience in this area, can play a
vital role to assist over time
Findings and Conclusions

 Findings
 Most of the Balance sheet and P/L statement line items increased at a higher rate right
after the merger took (FY 16) place but at the succeeding years the rate of increase was
not as high as FY 16.
 Overall profitability was satisfactory and not affected much due to the merger.
 Ability of a company to pay its current liabilities with only quick assets increased after the
merger.
 There was a geographical spread of the bank all over India in terms of increase in Branches
and ATMs.

 Conclusion
Merger and acquisition is one of the major outcomes of the financial transformation process
.These are considered as corporate events which helps an organisation to create synergy and
provide sustainable competitive advantage. From the study it can be concluded that by
adopting some strategical tool like merger and acquisition one can take a step forward to be
the market leader . The analysis has shown that the merger ha s increased the net profit,
value and overall profitability of the bank which justify the decision of merger undertaken by
Kotak Mahindra Bank .