Initial public offerings (IPOs) are once again catching investors' fancy, going by recent trends that show successful public issues of several first-timers and their respective robust listings on the bourses.
Not to miss the bus, RBL Bank, formerly known as Ratnakar Bank, will be hitting the primary markets with its public issue today. The Rs 1,123 crore issue size in the price band of Rs 224-225 per share will be worth lapping up, as several brokerage houses have recommended investors to put in their bids for this rare banking IPO.
But, why are analysts bullish on the RBL Bank's IPO, especially when the domestic banking sector is mired under the debris of mounting non-performing loans of several government-owned and select private lending entities over the past year or so?
Here are some key facts about the RBL Bank IPO and brokerage firms' take on the issue.
RBL Bank's public issue opens today (19 August) and closes on 23 August. According to G Chokkalingam, founder and managing director of Equinomics Research & Advisory, growth potential of the bank is strong, and it is a good long-term investment.
The bank has transformed itself from 2010 under the new management and has delivered superior growth. Profit after tax has shown CAGR of 45.6 percent, while advances and deposits have shown CAGR of 50 percent each in the last four years. Growth was propelled by certain in‐organic acquisition like acquiring the RBS (Royal Bank of Scotland) portfolio in FY2011 for business banking, credit card and mortgages, while also acquiring minority stake in micro finance institutions to improve private sector lending and rural banking.
The bank’s assets under management (AUM) has grown phenomenally from Rs 4,132 crore in FY2012 to Rs 21,229 crore in FY2016, a CAGR of 51 percent.
Antique Stock Broking has advised investors to subscribe to the issue with 2-3 years perspective. However, it has issued caution: "Unexpected deterioration in asset quality resulting from unseasoned loan portfolio, inability to ramp up CASA profile and moderation in growth remains the key risk," the report said.
According to Equinomics Research, prior to 2010, the bank was under performing due to weak leadership. It had no promoter and was under-managed and under-invested. However, post 2010, when the new management took over, they completely changed the architecture of the bank by taking a number of steps:
Introduced an ESOP program to motivate employees
Brought in high quality, long-term institutional capital for growth
Improved the operational architecture to one of high quality and pulled the bank to the forefront of the digital curve
Completely avoided high leverage sectors and long-term project financing sectors for giving advances and focused on working capital loans with regards to corporate advances.
According to Angel Broking, while the new management has been aggressive in expanding the loan book, it also has put in place an efficient risk management system. This has led to Gross Non Performing Assets (GNPAs) being restricted below 1 percent in the last four years. For 2015-16, GNPAs at 0.98 percent and Net Non Performing Assets (NNPAs) at 0.59 percent are very much comparable to that of new age private sector banks.
"We believe 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, we recommend a Subscribe to the issue," the brokerage report said.