RBL Bank (formerly called the
Ratnakar Bank) is coming out with an IPO which opens on 19-Aug-16 and closes on
23-Aug-16. This is going to be the fourth IPO this year which aims to raise
more than Rs 10 Billion at the markets. The issue hopes to collect Rs. 12.13
Billion through this issue which is priced at Rs. 224 – Rs. 225 per share. Of
the 12.13 Billion that the issue will raise, Rs 3.81 Billion will go to the
promoters as part of Offer to Sale while the company will raise Rs. 8.32
Billion. Shares can be applied in lots of 65 shares and its multiples. The
retail investors will not get any discount in this issue though 35% of the
issue is reserved for retail investors. The bank expects to use the proceeds to
maintain the Capital Adequacy Ratio as required by RBI.
RBL Bank started in 1943 as a
small regional bank with branches in Sangli and Kohlapur. It continued to be a
small bank until 2010 when the current management took over. The current
management, professionally managed with Vishwavir Ahuja at the helm, needs to
be credited for bringing the transformation in the last 6 years. It moved away
from being a small player in Maharashtra to being a mid-sized bank primarily
focusing on micro financing. It also acquired the retail operations of Royal
Bank of Scotland in 2014. RBL Bank also offers one of the highest interest
rates on deposits and uses the money to acquire some stake in some of the best
micro finance lenders.
While we look at the financial
performance of the company, the interest income has grown at a CAGR of 47% and
other income has grown at a CAGR of 57% between FY2012 and FY2016. The profits
have also grown at a CAGR of 46% in the same period. The margins have been
consistent around the 9% mark though it was at 12% in the year 2012. For the
year ending March 2016, the Gross NPA of the bank stands at 0.98% and its Net
NPA stands at 0.59%. This is exceptional especially considering the rapid
increase in the NPA numbers for other banks.
RBL
Bank’s financial performance (in INR Millions)
|
|||||
Details
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FY2012
|
FY2013
|
FY2014
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FY2015
|
FY2016
|
Total
revenue
|
5322
|
10057
|
16125
|
23564
|
32348
|
Total
expenses
|
4182
|
8461
|
14338
|
19963
|
26924
|
Profit after
tax
|
651
|
928
|
926
|
2071
|
2924
|
Net
profit margin (%)
|
12.2%
|
9.20%
|
5.70%
|
8.80%
|
9.0%
|
The company’s RONW (Return on Net
Worth) has also more than doubled in the 2 years from 2014. It now stands at
9.79% in 2016 compared to 4.60% in 2014. The company’s ROA (Return on Asset)
(which is the best indicator to assess the returns for a banking institution)
has also increased from 0.66% in 2014 to 0.98% in 2016.
The company had a consolidated diluted
EPS of Rs. 9.43 per share for the year ending March 2016 giving a PE (Price to
Earnings) range of 23.75 and 23.86 at the lower and higher spectrum of the
issue price. Considering that RBL Bank is a mid-sized private bank, it would be
fair to compare their valuation ratios with other listed mid-sized private
banks. The table below provides details on the valuation ratios for RBL’s
peers:
Banks
|
FY 2016
|
||
PE Ratio
|
P/BV Ratio
|
RoNW
|
|
RBL Bank
|
23.9
|
2.4
|
9.80%
|
Yes Bank
|
19.6
|
3.6
|
18.40%
|
Indusind Bank
|
29.1
|
4.0
|
13.20%
|
Kotak Mahindra Bank
|
40.4
|
4.2
|
10.40%
|
City Union Bank
|
16.9
|
2.5
|
14.60%
|
DCB Bank
|
14.7
|
1.6
|
11.20%
|
Compared to its peers, RBL’s RoNW
is the lowest but is expected to improve in the years to come given the rate at
which they are growing. The PE ratio is a tad higher than a few banks while it’s
far lower than a couple of others. The higher PE ratio is justifiable because
of the quality of the assets and low NPAs. Only DCB Bank has a lower P/BV ratio
than RBL Bank. Another reason that makes RBL attractive.
Subscribe to the issue if you are
looking at a long term investment for there might not be a lot of listing gains
to be made from the issue. I am definitely investing in this issue.
