RBL Bank IPO to hit markets on August 19; 10 things to know before investing

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New Delhi | Updated: August 18, 2016 3:11:38 PM

RBL Bank IPO is all set to hit capital markets on August 19 (Friday) to raise around Rs 1,213 crore at a price bank of Rs 224-255.

RBL Bank IPORBL Bank IPO is all set to hit capital markets on August 19 (Friday) to raise around Rs 1,213 crore at a price bank of Rs 224-225.

RBL Bank IPO is all set to hit capital markets on August 19 (Friday) to raise around Rs 1,213 crore at a price bank of Rs 224-225. This will be the first initial public offer by a private bank since 2005 when YES Bank had hit the stock markets. In a pre-IPO placement held in December 2015, RBL Bank had allotted 2.5 crore shares at a price of Rs 195 per share to investors, amounting to Rs 487.5 crore. Asian Development Bank, DVI Fund (Mauritius) and CDC Group were among these investors. The issue will close on August 23. RBL Bank was formerly known as the Ratnakar Bank Limited.

Below are 10 things you should know about RBL Bank and its public issue before subscribing:

1) Business and Background: The bank was started as a small, regional bank in Maharashtra in 1943 with two branches in Kolhapur and Sangli. RBL Bank offers a range of banking products and services customised to cater to the needs of large corporations, small and medium enterprises, agricultural customers, retail customers and development banking and financial inclusion (low income) customers.

2) Management with robust experience: During 2010, the new management team took over charge led by managing director and chief executive officer Vishwavir Ahuja, who previously served as MD and country CEO of Bank of America for the Indian subcontinent. According to Angel Broking, under Ahuja’s leadership, the bank adopted a new approach and transformed itself from being a traditional bank to a new age bank competing with other private sector banks.

3) Branch expansion: In the past five years, the new management has nearly doubled its branch network from 100 to 197. However, nearly half of the bank’s total branches are still located in Maharashtra alone.

4) Lead Managers: HDFC Bank, ICICI Securities, IIFL Holdings, SBI Capital Markets and IDFC Securities are the book running lead managers for the issue.

5) Objects of the offer: The objective of the offer is to augment the bank’s tier-I capital base to meet its future capital requirements due to expected growth of the bank’s assets. The listing will also enhance the visibility and brand name of the bank among existing and potential customers of the bank.

6) Listing: Shares of RBL Bank are proposed to be listed on BSE and NSE both.

7) CASA: RBL Bank has a low current account saving account (CASA) base of 18.6 per cent, but it’s been growing at a CAGR (compounded annual growth rate) of around 45 per cent. Angel Broking in a research report said, “It has been observed in the banking industry, particularly with many private sector banks, that the CASA ratio tends to improve as the business matures. We expect RBL to be able to scale up its CASA going forward, albeit at a slower pace than other private banks. Our calculated net interest margin (NIM) for the bank at 2.54 per cent also seems of scope for improvement, as cost of funds eases going ahead.”

8) Financials: For the financial year ended March 31, 2016, the lender reported net profit of Rs 296.80 crore, up 42.38 per cent against Rs 208.45 crore in the corresponding quarter a year ago. Bottomline of RBL Bank was at 65.74 for the financial year ended March 2012. The bank’s gross non-performing assets (NPA) stood at 0.77 per cent and 0.98 per cent for the financial years ended March 2015 and March 2016, respectively. Its net NPA stood at 0.27 per cent and 0.59 per cent as of March 31, 2015 and March 31, 2016, respectively.

9) Comparison with peers: According to Sharekhan, RBL Bank is valued at a price-to-earnings ratio (P/E) and P/BVPS of 23.4 times and 2.4 times respectively at its higher price band at FY2016 earnings.

Source: SharekhanSource: Sharekhan

10) Should you invest: Angel Broking believes the issue is attractively priced taking into account the valuations at which other mid-sized private sector banks are currently trading. To add to it, given the growth prospects of the bank, the brokerage house recommend a ‘Subscribe’ to the issue.

According to Hem Securities, at a price band of Rs 224-225, RBL Bank is bringing the issue at P/B multiple of 2.2x on post issue book value of Rs 103.54. RBL Bank with its superior asset quality and strong financial growth looks to have strong potential for future growth. Hence, the brokerage house recommends ‘Subscribe’ on issue.

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