IPO Note: RBL Bank Ltd. Industry: Banking Recommendation: Subscribe Date: August 12, 2016 Issue Snapshot Company Name RBL Bank Ltd. Issue Opens August 19, 2016 to August 23, 2016 Price Band Rs. 224 to Rs. 225 Bid Lot The Offer Issue Size IPO Process Face Value Rs. 10.00 Exchanges BRLM Registrar Objects of the Offer 65 Equity Shares and in multiples thereof. Public issue of 53,909,628* Equity shares of Face value Rs.10 each, (Comprising of fresh issue of 37,000,000* Equity Shares (Rs. 832.5 cr) and Offer for Sale of 16,909,628 Equity Shares (Rs. 380.5 cr*) by Selling Shareholder). Rs. 1211.3 1213.0 Crore 100% Book Building NSE & BSE Axis Capital Limited, Kotak Mahindra Capital Company Limited, HDFC Bank Limited, Citigroup Global Markets (India) Private Limited, Morgan Stanley India Company Private Limited, ICICI Securities Limited, IDFC Securities Limited, IIFL Holdings Limited and SBI Capital Markets Limited Link Intime India Private Limited Offer for Sale The Company will not receive any proceeds of the Offer for Sale by the Selling Shareholder Fresh Issue To augment Bank s Tier-I capital base to meet future capital requirements, and to ensure compliance with Basel III and other RBI guidelines; and General corporate purposes. Issue Break up Issue Size Allocation Equity Shares* QIB 50% 26,954,814 HNI 15% 8,086,444 RII 35% 18,868,370 Total Public 100% 53,909,628 * Based on Higher Price Band @ 225 Company Highlights RBL Bank Ltd ( RBL ) is one of India s fastest growing private sector banks in the last six years. It offers a comprehensive range of banking products and services customized to cater to the needs of large corporations, small and medium enterprises ( SMEs ), agricultural customers, retail customers and development banking & financial inclusion (low income) customers. RBL have been expanding presence across India through a growing network of branches and ATMs and upgrading traditional delivery channels with modern technology-enabled channels like phone banking, internet banking and mobile banking. As of March 31, 2016, RBL has 197 interconnected branches and 362 interconnected ATMs spread across 16 Indian states and union territories serving over 1.9 million customers. As part of the growth strategy, RBL acquired certain Indian businesses of the Royal Bank of Scotland ( RBS ), including the RBS s Business Banking, Credit Card and Mortgage Portfolio Businesses, in Fiscal 2014. This acquisition has added to existing businesses, enabling the bank to expand their scale of operations and geographic presence. More importantly, as part of this acquisition, RBL also integrated an experienced team of RBS employees associated with these businesses. The Branch network, which was historically concentrated in South Western Maharashtra and Northern Karnataka, has now expanded across India through a growing network of branches and ATMs. During FY15 and FY16, RBL opened 25 new branches across various states including in the key cities of Kolkata, Delhi, Mumbai, Chennai and Bangalore. Their distribution network included 362 interconnected ATMs as of March 31, 2016. In addition, RBL has Digital Banking channels including Mobile Banking, Internet Banking and Phone Banking/IVR. RBL has developed Micro- Payment and Branchless Banking Solutions as well as a Business Correspondent Network to expand customer reach. 1
The Business segments consist of Corporate and Institutional Banking ( C&IB ), Commercial Banking ( CB ), Branch and Business Banking ( BBB ), Agribusiness Banking ( AB ), Development Banking and Financial Inclusion ( DB&FI ) and Treasury and Financial Markets Operations. One of the core tenets assimilated within each of this business segments is to cross-sell the products and solutions of entire Bank. Total income has grown from Rs. 532 crore in FY12 to Rs. 3235 crore in FY16, which represents a CAGR of 57.02%. Other income has increased from Rs. 67 crore in FY12 to Rs. 491 crore in FY16, which represents a CAGR of 64.42%. Net profit has increased from Rs. 65 crore in FY12 to Rs. 293 crore in FY16, which represents a CAGR of 45.59%. Deposits grew from Rs. 4739 crore at the end of FY12 to Rs. 24349 crore at the end of FY16, which represents a CAGR of 50.55%. Advances grew from Rs. 4132 crore at the end of FY12 to Rs. 21229 crore at the end of FY16, which represents a CAGR of 50.54%. View RBL Bank Ltd ( RBL ) is one of the fastest growing Private Sector Bank, having wide distribution network with presence through 197 interconnected branches and 362 interconnected ATMs in 16 States and Union Territories in India serving over 1.9 million customers. Over the years, advances have grown at a rate of 51% CAGR between FY12 and FY16 while total Income grew at a CAGR of 57% in the same time period. The bank depends on deposits as its source of funds and the same is reflected in declining cost of funds from 9.2% in FY14 to 8% in FY16, thus expanding the net interest margins (NIM) from 2.68% in FY12 to 2.96% in FY16. The bank depends or banks upon MSME customers and Corporate and Institutional Banking ( C&IB ) are the biggest contributor (38.56% of loan assets) among business segments. Branch and Business Banking ( BBB ) segment which includes retail banking has relatively low contribution of 17.15% as of FY16 but growing. According to the management, CI&IB business to focus on working capital driven non-fund based business going ahead. Low retail penetration is witnessed from low CASA ratio of 18.64% as of FY16 and heavy dependence on top 20 depositors (22.88% of total deposits). Nevertheless, the bank has every chance to enhance its CASA ratio with increase in retail banking. RBL bank has also curtailed on operating expenses, thus improving its cost to income ratio from 70.35% in FY14 to 58.59% in FY16. Besides, the management focus will be more on the high usage of technology, following the "High Tech, High Touch" mantra. Owing to cost curtail, return on assets (ROA) have improved from 0.31% in FY14 to 0.98% in FY16. One of the aspects to highlight has been the steady and strong asset quality of the bank despite asset quality review (AQR) by RBI. The gross NPAs (GNPA) as % of gross advances of RBL bank increased from 0.79% in FY14 to 0.98% in FY16. The restructured advances as of FY16 stand at a low of ~Rs 20 crore. Besides, the bank doesn t have any massive exposure to the stressed sectors. Although, 95 of the 197 branches are in Maharashtra and Karnataka, account for 45% of the business against 78% initially, thus lowering its dependence and diversifying. On valuation front at higher price band, RBL is valued at P/BV multiple of 2.18x on post issue BVPS, which is at par with industry average. Given, healthy asset quality, strong credit growth and gradual penetration to new areas, the IPO looks quite compelling and we advise our investors to SUBSCRIBE the issue from a long term perspective, with possibility of some listing gains. Deposits and Percentage Composition (In Rs. Cr.) 2014 2015 2016 Amount % of total Amount % of total Amount % of total Demand deposits 1,691.46 14.58 2,199.81 12.86 2,779.64 11.42 Savings deposits 678.24 5.85 957.57 5.6 1,758.21 7.22 Term deposits 9,228.91 79.57 13,941.88 81.54 19,810.80 81.36 Total 11,598.60 100 17,099.25 100 24,348.65 100 2
Financial Statement (In Rs. Cr.) FY12 FY13 FY14 FY15 FY16 Balance sheet Share Capital 214.9 252.9 272.0 293.5 324.7 Net Worth 1,142.2 1,605.7 2,013.7 2,229.4 2,988.2 Deposits 4,739.3 8,340.5 11,598.6 17,099.3 24,348.7 Borrowings 1,198.6 2,737.3 3,895.5 6,962.7 10,536.2 Advances 4,132.3 6,376.2 9,835.0 14,449.8 21,229.1 Investments 2,264.7 5,516.0 6,477.0 9,792.3 14,436.0 Income statement Interest Earned 465.1 879.3 1,351.6 1,953.1 2,744.3 Non-Interest Income 67.1 126.4 261.0 403.4 490.5 Total Income 532.2 1,005.8 1,612.6 2,356.5 3,234.9 Interest Expended 278.3 621.8 1,010.0 1,396.7 1,925.1 Net Interest Income 186.8 257.5 341.6 556.4 819.2 Operating Expenses 140.0 224.4 423.9 599.7 767.3 Provisions 18.7 22.6 46.2 60.2 114.4 Net Profit 65.1 92.9 92.7 207.2 292.5 Earning per share ( Diluted ) (Rs.) 3.01 4.17 3.61 7.00 9.43 Return on net worth (%) 5.70 5.78 4.60 9.29 9.79 Net asset value per equity share (Rs.) 53.14 63.48 74.02 75.97 92.02 Comparison with listed industry peers Co Name EPS (Rs.) P/E (x) P/BV (x) RONW (%) NAV (Rs.) RBL Bank Limited 9.60 28.45* 2.18* 9.79 92.02 Yes Bank Limited 60.39 19.59 3.61 18.38 327.26 Indusind Bank Limited 39.68 29.14 3.97 13.20 291.02 Kotak Mahindra Bank Limited 18.91 40.42 4.20 10.37 181.86 City Union Bank Limited 7.44 16.85 2.46 14.57 51.02 DCB Bank Limited 6.86 14.65 1.64 11.18 61.19 * Calculated, Ashika Research 3
(In Rs. Cr.) FY14 FY15 FY16 Return on Equity and Assets Net Profit 92.7 207.2 292.5 Average Total Assets 14090.4 20284.1 29733.1 Average Net Worth 1704.8 2162.4 2584.5 Return on Net Worth (%) 5.44 9.58 11.32 Return on Assets (%) 0.66 1.02 0.98 Average Net Worth % of Avg Total Assets (%) 12.1 10.66 8.69 Dividend payout ratio (%) 26.53% 17.70% 16.67% Key Operational and Financial Information Number of branches / extension counters (nos.) 172 183 197 Total advances (Net) 9,835.05 14,449.83 21,229.08 Total assets 18,197.08 27,103.65 39,160.09 Total deposits 11,598.60 17,099.25 24,348.65 CASA Ratio (%) 20.43 18.46 18.64 Net Interest Margin (%) 2.68 3.01 2.96 Capital Adequacy Ratio (CAR) (%) 14.64 13.13 12.94 Cost to Income Ratio (%) 70.35 62.48 58.59 Net profit 92.67 207.18 292.49 Gross NPA (%) (as % of Gross advances) 0.79 0.77 0.98 Net NPA (%) (as % of Net advances) 0.31 0.27 0.59 Return on Asset (%) 0.66 1.02 0.98 Provision coverage (%) 65.73 68.28 55.87 Capital adequacy ratio ( CAR ) (%) 14.64% 13.13% 12.94% CAR Tier I capital (%) 14.33% 12.74% 11.10% CAR Tier II capital (%) 0.31% 0.39% 1.84% Non Performing Assets ( NPAs ) Gross NPAs 77.75 111.23 208.05 Net NPAs 30.51 38.59 124.44 Gross NPAs/gross advances (%) 0.79 0.77 0.98 Net NPAs/net advances (%) 0.31 0.27 0.59 Provision (%) 47.24 72.64 83.61 Yield on assets (%) 10.6 10.57 9.91 Cost of funds (%) 9.2 8.93 8 Spread (%) 1.4 1.65 1.91 Net Interest Margin (%) 2.68 3.01 2.96 Interest coverage ratio 1.11 1.17 1.18 4
Name Designation Email ID Contact No. Paras Bothra VP Equity Research paras@ashikagroup.com +91 22 6611 1704 Krishna Kumar Agarwal Equity Research Analyst krishna.a@ashikagroup.com +91 33 4036 0646 Partha Mazumder Equity Research Analyst partha.m@ashikagroup.com +91 33 4036 0647 Arijit Malakar Equity Research Analyst amalakar@ashikagroup.com +91 33 4036 0644 Chanchal Bachhawat Equity Research Analyst chanchal.bachhawat @ashikagroup.com +91 22 6611 1712 Tirthankar Das Technical & Derivative Analyst tirthankar.d@ashikagroup.com +91 33 4036 0645 SEBI Registration No. INH000000206 Disclosure The Research Analysts and /or do hereby certify that all the views expressed in this research report accurately reflect their views about the subject issuer(s) or securities. Moreover, they also certify the followings:- The Research Analyst or or his/its Associates or his/its relative, has any financial interest in the subject company (ies) covered in this report. No The Research Analyst or or his/its Associates or his/its relative, have actual/beneficial ownership of 1% or more in the subject company, at the end of the month immediately preceding the date of the publication of the research report. No The Research Analyst or or his/its Associates or his/its relatives has any material conflict of interest at the time of publication of the research report. No The Research Analyst or or his/its Associates have received any compensation or compensation for investment banking or merchant banking or brokerage services or for product other than for investment banking or merchant banking or brokerage services from the companies covered in this report in the past 12 months. No * The Research Analyst or or his/its Associates have managed or co managed in the previous 12 months any private or public offering of securities for the company (ies) covered in this report. No The Research Analyst or or his/its Associates have received any compensation or other benefits from the company (ies) covered in this report or any third party in connection with the Research Report. No The Research Analyst has served as an officer, director or employee of the company (ies) covered in the research report. No The Research Analyst or has been engaged in Market making activity of the company (ies) covered in the research report. No * is acting as a Sub-Syndicate Member for this IPO Disclaimer This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Ashika Stock Broking Ltd. is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form. The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon such. Ashika Stock Broking Ltd. or any of its affiliates or employees shall not be in anyway responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Ashika Stock Broking Ltd., or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations. 5