Some time in the mid-nineties, on one of his routine overseas trips, Uday Kotak got lucky. He chanced upon a meeting with the Chairman of a blue-blooded New York-headquartered global investment bank. Kotak remembers most of the conversation that transpired during that fleeting encounter, but there's one line of the I-bank Chief that's been since etched in the marble of Kotak's mind. "He explained to me the importance of spotting gold nuggets in a coalfield. It is not easy but when you find it, you must seize it. Just as there is danger lurking there, there is always an opportunity lurking too," recalls the 47-year-old Vice Chairman & Managing Director of the Kotak Mahindra Bank, which today boasts a net worth of Rs 2,000 crore, with a presence across commercial banking, investment banking, broking, insurance, mutual funds, wealth management and private equity.

Perhaps it's this appealing philosophy of finding value long before it actually reveals itself to the rest of the world that might have persuaded Kotak to take a closer look at a partnership with one of the Wall Street banks. In 1996 Goldman Sachs came in as a joint venture partner for the Indian entrepreneur's broking and investment banking businesses. A decade down the line, Kotak has pretty much mastered the knack of striking gold in the coalfield that is Indian industry. Sidestepping pitfalls with élan, he made investments at rock-bottom prices in industries ranging from telecom to publishing to FMCG. Today, those bets have appreciated much faster than the yellow metal can ever hope to. For instance, recently Kotak sold the 8.33 per cent his flagship Kotak Mahindra Bank and its subsidiaries held in telecom major Hutchison Essar for an eye-popping Rs 1,019 crore. Market observers feel Kotak wouldn't have paid much more than Rs 4.5 crore for his initial stake.

Uday Kotak has emerged a worthy competitor to DSP Merrill Lynch's Hemendra Kothari (left) and JM Morgan Stanley's Nimesh Kampani

Goldman Sachs may have helped Kotak learn the trick of digging the gems out of the dirt, but the high-profile chief of the eponymous group-he joined hands with the Mahindra family in 1985-has worked out his own homegrown recipe to translate the value locked in those stones into big bucks. So much so, a few weeks ago Kotak thought the time ripe to buy out Goldman's 25 per cent holding in Kotak Securities (the broking firm) and Kotak Mahindra Capital Company (the investment bank) for Rs 333 crore. In sharp contrast, the Indian promoter at another head-on competitor, DSP Merrill Lynch, chose to instead offload his holding in favour of his Wall Street partner for all of $500 million (Rs 2,250 crore). Says veteran investment banker Udayan Bose, now Chairman of Thomas Cook India: "I knew him when he started out as a very young man and have watched his progress and have also worked with him on transactions. I have been impressed by his dedication, focus and commitment."

Kotak won't say it, but the message in the buyout of Goldman Sachs is pretty clear: Thanks for the help guys, but now it's best for Kotak Mahindra to be on its own (although there are some market watchers who insist that it's Goldman that wanted to be on its own in India). Compared to the global Goliaths-Goldman, Morgan Stanley and Merrill Lynch-Kotak is a relative David on Dalal Street. But Kotak is aiming his sling and his stone far and wide, and not just at domestic targets. "India, Indian institutions and Indians can have a shot at the world today. These opportunities were not there 5-10 years ago. This is India's second tryst with destiny," he told BT last fortnight. If that sounds like an exaggeration and hollow bravado, take a look at the performance of his financial services conglomerate, which in many ways is a reflection of the buoyancy in the Indian economy and markets and the can-do spirit that's gripped India Inc. Kotak Mahindra Bank's deposits have soared by 85.2 per cent for the nine months ended December 2005. Kotak Securities accounts for nearly 45 per cent of the group's profits, the investment bank tops the league tables for M&A deals in calendar 2005, and the group's consolidated net profits shot up by 113.6 per cent in the April-December 2005 period. It's against such a sanguine backdrop that Kotak is now talking about making the Next Big Leap-onto the international stage. "Our aspiration is to be consolidators in the financial services game rather than consolidatees. We want to be a global institution, like JP Morgan, Goldman Sachs and Merrill Lynch. These are family names that reflect the aspirations of a few people in the US more than 100 years ago. (Like India today) they too had the advantage of a large domestic market. "What may have taken 100 years then, we have a chance to do in 10. We will give it a shot," thunders Kotak.

He's already begun taking baby steps overseas, with a presence in Dubai, London and New York-for instance, Kotak has a registered FII in London that's doing business of a billion dollars. A Singapore outpost too is on the cards. Kotak today may not compare well at all with the family-named firms on Wall Street-Morgan Stanley for instance has Assets Under Management to the extent of $622 billion (Rs 2,799,000 crore) in 2006. Yet, for Kotak, this is only the beginning of a long outbound journey. What's more, it's the huge consumption story back home that will ensure handsome double-digit growth across virtually all his ventures-which are a balanced combo of cyclical businesses (broking & investment banking for instance) and the counter-cyclical ones like lending, stress-asset recovery, and life insurance-for some time to come. Says Hemendra Kothari, Chairman of Kotak's head-on competitor, DSP Merrill Lynch: "His group has interests across retail banking, insurance, investment banking and mutual funds, amongst others. That's the greatest testament to Uday's strength and capability as an astute financial professional."

"We want to take our share of low-cost deposits from 16-17 per cent to 30-35 per cent in three years" Dipak Gupta Executive Director Kotak Mahindra Bank	"In businesses like private equity our advantage is our networking ability, which allows us to source business" C. Jayaram Executive Director/Kotak Mahindra Bank

If Kotak is convinced that India today is "sitting on a wonderful sweet spot," it's his bank-set up in 2003 when the then flagship Kotak Mahindra Finance Ltd (KMFL) was converted into a bank-that will prove a major growth driver in the domestic, retail-driven market. The bank fits in well with Kotak's customer-focussed strategy, offering a central platform for relationships across the group's various businesses like commercial vehicle and retail finance, corporate banking, treasury and housing finance. With 65 branches today, which will go up to 100 in 2006-07, Kotak is clearly in a hurry to grow the customer base, which currently stands at 40 lakh. "We want to build our franchises and attract low-cost deposits. Today, low-cost deposit comprises 16-17 per cent of the total deposits. We would like this share to improve to 30-35 per cent possibly in the next three years," says Dipak Gupta, Executive Director (Retail) at Kotak Mahindra Bank Ltd (KMBL).

"I have worked with him on transactions and am impressed by his dedication, focus and commitment" Udayan Bose Chairman/ Thomas Cook India	"We were never dependent on Goldman. Today we have built our strengths on the GDR side too" Falguni Nayar Managing Director/Kotak Mahindra Capital

Yet, 100 branches would hardly be enough for Kotak to realise his ambition of size and scale even domestically, forget internationally. That's why inorganic growth is inevitable although the Vice Chairman does not see too many acquisition targets around him in the private banking space. What would prove a huge, ideal opportunity for growth for Kotak is marriages across the public sector and private banking space. Such a deal would make immense sense for KMBL as it would at a stroke get a comprehensive pan-Indian reach, both urban and rural. But Kotak will be the first one to tell you that acquisitions of PSU banks today appear a pipe dream at best.

If Kotak lacks size and scale today, he's trying to make up for that via innovation and a first-mover approach. Consider the stress-asset recovery business for instance, where Kotak is pretty much the only private player. He sniffed the opportunity way back in 1997-98 when KMFL set up a recovery team (for its own balance sheet). It's competence built since then that has allowed Kotak to look at asset-recovery as a full-fledged business, which today is a $0.5 billion (Rs 2,250 crore) portfolio, comprising stress-assets with a less than Rs 10 crore ticket size. "We were early in the game, and that's enabled us to build the capabilities," says Kotak. Adds Gupta: "There is a huge opportunity in the asset reconstruction business. The official value of non-performing assets in India is Rs 1,00,000 crore." Kotak is also eyeing setting up a separate asset reconstruction company (arc), perhaps with a foreign partner, but "there is no compulsion at this stage." Private equity and a real estate fund are two other fledgling businesses that could blossom in future. "Our advantage in a business like private equity comes from our networking ability which means our ability to source business is high," says C. Jayaram, Executive Director, Kotak Mahindra Bank."

"I WANT KOTAK TO BE LIKE MORGAN, MERRILL AND GOLDMAN"

A conversation with Uday Kotak isn't only delightful from the information he shares about his businesses, but also for his big-picture views on subjects ranging from entrepreneurship to his ambitions and vision to his business philosophies. Excerpts of some of the gems, or Kotakisms, if you will. ON HIS ASPIRATION: To build a globally-competitive business. The world is flat. We want to be consolidators in the financial services business rather than be consolidatees. To build a financial institution from India of world scale, size and quality. ON JOINT VENTURES: Treat your partners well and be fair in terms of the relationship beyond the JV. ON VALUATIONS: They are like "Maya." What is high and low is a decision you take over a period of time. ON GLOBALISATION: It is not a threat. It is an opportunity. I think that's where our mindset has changed. ON SPOTTING OPPORTUNITIES : Keep your eyes and ears open and you always find opportunities in financial services. If you are in a coal field, you must have the eye to spot gold nuggets. It is not easy but when it comes, you must seize it. Just as there is danger lurking, there is an opportunity lurking. ON GOING GLOBAL: Global is in our minds. It is about how we think, it is about our approach and what processes we have. It is about getting people. ON HIS FEAR: My concern is to ensure that we continue to be the place where the best talent wants to be. ON INDIA'S FUTURE: Our time has come. If that is the conviction one has, this is the time to walk the talk. ON THE GLOBAL OPPORTUNITY: India, Indian institutions and Indians can have a shot at the world today. These chances don't come often. These opportunities were not there 5-10 years ago. We are sitting at a wonderful sweet spot. This is India's second tryst with destiny.

"We want to take our market share up from 8 per cent to 10 per cent in the next two years" NARAYAN S.A. Managing Director/Kotak Securities

Another such long-term counter-cyclical business is life insurance, because of its stability. Breakeven clearly is some time away, three years down the line, according to Gupta. Market share, meantime, is nothing to write home about, at meagre 1.48 per cent (the leader in the business, ICICI Prudential Life, has a share of 6.25 per cent). "We expect an added capital requirement of Rs 150 crore in the life business in the next three years. In a growing insurance business, it is a trade off between growth and profits," says Gupta. Adds Kotak. "We are seeing positive signs in the insurance business. To me, it is about value creation and what needs to be understood is what is value creation versus the cost of value creation. We are getting momentum on numbers and I feel good about the business." Capital won't be a problem for Kotak, given the bank's $2 billion market cap, and over Rs 1,000 crore he's mopped up via the telecom stake sale.

What's working in Kotak's favour today is the gung-ho stock market, with Narayan S.A., Managing Director, Kotak Securities, growing his customer base by more than 7,000 every month. "We had a market share of 8 per cent last year and the intention is to take it 10 per cent over the next two years." Phenomenally, Kotak Securities contributes just under 45 per cent of the group's consolidated net profits. Is that a good thing? Well, yes and no. Sohini Andani, Equity Analyst at ask Raymond James, says the profitability of the Kotak Group is vulnerable to market fluctuations because a major chunk of its profits comes from stock broking operations. "But the positive side is that the group has been ploughing back profits into its other businesses like life insurance," adds Andani.

The roaring indices coupled with the go-go growth ambitions of corporate India have also brought good tidings for Kotak on the M&A and IPO front, with business booming here too. The big question, though, is: Can Kotak continue to pull in the big deals and mandates without Goldman Sachs in tow? As one investment banker points out: "The fact is that Goldman wanted to go it alone, and perhaps that's why Kotak didn't have to pay too much." More than IPOs, the concern is on the crossborder M&A front, where Goldman's overseas presence has always proved handy for Kotak. In the near term, what of course helps is the one-year "period of cooperation" between the two parties. What after that? Kotak counters that the Wall Street firms play in bulge-bracket ($1 billion and over) territory, which Indian companies have yet to step into. He gives the examples of two recent deals done by Kotak where Goldman didn't have a role to play at all: The exit of Thomas Cook in India when they sold their holding to Dubai Financial and the acquisition of a majority stake in Micro Inks by Germany's Huber Group. Adds Falguni Nayar, Managing Director, Kotak Mahindra Capital Co: "We were never dependent on Goldman. Today, we have built our strengths on the GDR side also. Our focus will now be on convertibles, GDRs and outbound M&As."

The way Kotak sees it, being independent doesn't mean he's alone; rather it's a great opportunity to build his franchise and his name in global markets. He will seek alliances when necessary, adopting a "horses for courses," mindset. Yet, he doesn't rule out two other options: A joint venture within the investment bank, or a mother alliance across all the businesses. Whichever card he wishes to play, the good news for Kotak today is that he holds a mean hand, with a couple of aces up his sleeve for good measure.