UDAY Kotak, The founder and executive vice chairman of Kotak Mahindra Bank, has never been a big fan of received wisdom. A star cricket player in his first year at India’s elite Jamnalal Bajaj Institute of Management Studies in 1980, Kotak suffered a head injury when he was hit by a ball and was forced to take a year off from his studies. He worked in his family’s Mumbai-based cotton-trading business while recuperating. Seniority, not logic, held sway in the family business, he found. “I saw very quickly that I could not have my way even when I was right,” says Kotak. But on graduating at the top of his class in 1982, the soft-spoken Kotak turned down a job offer at consumer goods group Hindustan Lever and joined the family business after his father offered him a small corner office and the chance to pursue a budding interest in financial deal making. Three years later, Kotak split his financial operation off from the cotton business and sold a 15 percent stake to tractor tycoon Anand Mahindra for an undisclosed sum, naming the outfit Kotak Mahindra. “Kotak has never followed the beaten track, which explains his prowess as an investment banker and entrepreneur,” says one admiring London-based rival.
Taking advantage of the gradual liberalization of India’s financial sector, Kotak initially pioneered the business of buying discounted receivables for companies short of cash, then ventured into the nascent stockbrokerage industry in 1985 before taking the firm public with a $3 million IPO in 1991. Five years later he sold a 26 percent stake to Goldman, Sachs & Co. and expanded into full-service investment banking advisory services. Today, two years after buying Goldman Sachs out of listed Kotak Mahindra for just $72 million — the stake’s book value but just a fraction of its market value — the 49-year-old controls a group employing 20,000 people, with significant operations in everything from equity underwriting to mergers and acquisitions advice to retail banking. (The company obtained a banking license in 2003.)
Kotak established his bank as a prominent equity underwriter by personally leading the country’s first book-building process, on a $250 million initial public offering of a 44 percent stake in technology developer Hughes Software Systems in 1999. This year through mid-August the bank ranked second in India as an equity book runner, credited with $1.4 billion worth of equity in nine issues, just behind Deutsche Bank’s $1.5 billion, according to Dealogic. Kotak Mahindra worked on the $4.25 billion rights issue by government-controlled State Bank of India in February and on Reliance Power’s $3 billion IPO of a 10.1 percent stake in January.
The bank, like its rivals, has suffered a severe drought in equity deal flow in recent months. The Bombay Stock Exchange’s Sensex index, hit by rising inflation and interest rates, a falling rupee and a pullback from India by overseas shareholders, has fallen 26 percent since the start of this year; equity issuance amounted to $11.73 billion from January to late August, down 54 percent from a year earlier. But Kotak is confident his bank will thrive when the market recovers. “We have a huge pipeline of potential deals ready to go, but they are on hold until markets are more conducive,” he says. “The Indian inflation situation, and thus the state of equity capital markets, is largely dependent on whether the oil price continues to drop.”
In M&A, Kotak has avoided direct competition with international investment banks and focused instead on small to midsize deals where the group’s strong ties to local shareholders through its brokerage operation can be a major advantage. Kotak Mahindra ranks a lowly 20th by value in India, advising on $2.3 billion worth of transactions, but it is fourth in terms of number of deals, with six, according to Dealogic. The bank is advising Indian building materials group My Home Industries on the sale of a 50 percent stake to Ireland-based rival CRH. “We always try to play to our strengths compared to the international competition,” says Kotak.
