Monday, August 15, 2016

IPO ANALYSIS: RBL BANK LIMITED – AGGRESSIVELY PRICED - AVOID



ISSUE DETAILS

ISSUE OPENS / CLOSES ON

19-08 / 23-08-2016
ISSUE SIZE / OFS
RS 1150 CR
FACE VALUE
RS 10
PRICE BAND
RS 224-225

BUSINESS

BANKING, FINANCIAL SERVICES

PROMOTERS

PROFESSIONALLY MANAGED
LISTINGS
BSE, NSE

BRLMs
Kotak Mahindra Capital Company, Axis Capital, Citigroup Global Markets India, Morgan Stanley India, HDFC Bank, ICICI Securities, IDFC Securities, IIFL Holdings and SBI Capital Markets.
REGISTRAR
LINK INTIME
IPO GRADE
NA

BUSINESS:

RBL Bank is one of the fastest growing private sector banks in the last few years. As of March 31, 2016, RBL had 197 interconnected branches and 362 interconnected ATMs spread across 16 Indian states and union territories serving approximately 2 million customers. Though the Bank has a 73-year operating history, the bank has been transformed in the past six years from a traditional bank into a ‘New Age’ bank while harnessing the heritage, relationships with customers and domain strengths.

OBJECTS OF THE ISSUE:

The objects of the Fresh Issue are to augment the Bank’s Tier-I capital base and to ensure compliance with Basel III requirements and other RBI guidelines.

       

  FINANCIALS:  (RS IN CRORES)



31-03-2014
31-03-2015
31-03-2016
CAPITAL
272.04
293.45
324.78
REVENUES / TOTAL INCOME

1613

2356

3234
NET PROFIT
    93
  208
  297
EPS (Rs)
  3.63
  7.23
 9.43
RONW (%)
 4.60
  9.29
 9.79

  

  RISKS


1. The success depends largely upon the top management team,skilled personnel and the ability to manage attrition as well as to attract personnel.

2. Low CASA: CASA ratio has decreased from 20.43% as of March 31, 2014 to 18.46% as of March 31, 2015, and then increased to 18.64% as of March 31, 2016.

3. Regional concentration - in western and south-western India.

4. Banking industry is highly competitive.

5. As on March 31, 2016, the top 20 depositors constituted 22.88% of the total deposits.

6. A prolonged downturn in the real estate market could result in losses and adversely affect the profitability of the bank. As of March 31, 2016, bank’s exposure to the real estate sector amounted to ₹ 22,48cr, representing more than 7 % of the gross credit portfolio.

VALUATION AND RECOMMENDATIONS:

The bank is likely to post an EPS of Rs 10 for FY 17 on the expanded capital. The asking PE is 20 plus, which is on the high side for a bank of RBL’s profile. The comparative listed entity is Karnataka Bank which is trading around Rs 180 and available for less than 10 PE.  

The IPO has been aggressively priced. The average RONW for the last 3 years is less than 10 percent.

AVOID THE IPO.

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