RBL Bank IPO  (Rathnakar Bank) – What are the hidden factors?

RBL Bank IPO - Should you subscribeRBL Bank IPO  (Rathnakar Bank IPO) – What are the hidden factors?

Mumbai based, the RBL Bank (formerly known as Rathnakar Bank) IPO would open for subscription on 19th August, 2016. RBL Bank Limited is one of the leading private sector bank in India. The company revenues grew at 83% CAGR in the last 5 years ending FY15 indicating strong growth. Its profits are at 8.8% for the year ended Mar-15. There are several positive factors in RBL Bank Ltd IPO. What are the hidden factors of the RBL Bank IPO? Since there are several MNC lead managers who are front ending this, RBL Bank IPO news is catching attention of investors.

About RBL Bank Limited

RBL is one of India’s fastest growing private sector banks in the last five years. RBL 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. They  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, 2015, they had 183 interconnected branches and 348 interconnected ATMs spread across 13 Indian states and union territories serving over 1.3 million customers.

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Issue details of RBL Bank IPO

  • IPO opens: 19-Aug-2016
  • IPO closes: 23-Aug-2016
  • Face Value: Rs 10 per share
  • RBL Bank IPO Price band: Rs 224 to 225 per share
  • Issue size: Rs 1,212 Crores
  • Market lot: minimum of 65 shares
  • Minimum investment: Rs 14,560 on lower price band
  • Lead Managers: Axis Capital, Kotak Bank, Citigroup global markets, Morgan Stanley etc.,
  • Listing: BSE / NSE
  • RBL Bank Listing would happen after 3 to 7 working days from closure of the issue.
  • Download RBL Bank IPO  Prospectus at this link.

Objects of the RBL Bank IPO issue

The Issue comprises a Fresh Issue by Company and an Offer for Sale by the Selling Shareholders.

a) The Offer for Sale

Company will not receive any proceeds from the Offer for Sale.

b) The Fresh Issue

The Net Proceeds from the Fresh Issue will be utilized towards the following objects:

1)  Augment capital base to meet Bank's future capital requirements ;

2) Enhance their visibility and brand name among existing and potential customers.;

3) General corporate purposes.

Company Financials (reinstated)

  • The company generated revenue of Rs 207.76 Crores  for the year ended Mar-11 and Rs 2,356.69 Crores for the year ended Mar-15.  We are yet to get FY16 nos.
  • The company posted a profit of Rs 12.79 Crores for the year ended Mar-11 and profit of Rs 208.45 Crores for the year ended Mar-15. We are yet to get FY16 nos.
  • Its restated-consolidated EPS for FY 2015 is Rs 7.23 and last 3 years average EPS Rs 5.53

RBL Bank IPO Financials

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Reasons to invest RBL Bank IPO

  • Strong revenue growth of 83% CAGR in last 5 years till FY15.
  • RBL Bank IPO news is creating buzz as several MNC financial intermediaries are the lead managers for this issue.
  • Client focused approach to business resulting in growing brand recognition
  • Robust multi-channel distribution system
  • Partnerships that expand the reach in rural markets
  • Growing net interest and non-interest income
  • Risk management and balance sheet focus
  • Modern and scalable information technology systems infrastructure
  • Focus on operational quality and scalability

Reasons not to invest in an RBL Bank Ltd IPO

  • Margins are low and inconsistent in the last few years. In the last 3 years, it generated profits of 8.8% to 9.2%. However, we cannot expect higher margins in banking sector itself.
  • The bank has issued preferential shares to the members violating SEBI norms. It paid over Rs 47 lakhs to SEBI as penalty recently.
  • The bank has, in certain instances, in the past, made allotments of equity shares to more than 49 persons that were not in compliance with the then-applicable laws relating to a public offering of securities, which may subject Bank to, among other things, sanctions, adjudicatory penalties, remedial directions and other adverse orders, from, amongst others, the RoC and SEBI.
  • Recent growth may not be indicative of its future performance and they may not be able to continue or improve its recent performance level business and financial performance could suffer if we are unable to effectively manage its growing asset portfolio and control the level of its NPAs. Any increase in RBI-mandated provisioning requirements could also affect its business
  • Its success depends largely upon its management team and skilled personnel and its ability to manage attrition as well as to attract and retain personnel
  • They are involved in certain legal and other proceedings in India and may face certain liabilities as a result of the same.
  • Its business is vulnerable to interest rate and investment-related risks. Volatility in interest rates, value of investments and other market conditions could adversely affect its net interest margin, the value of its fixed income portfolio, its income from treasury operations, the quality of its loan portfolio and financial performance.
  • Other risk factors (Internal and external) can be viewed in the draft prospectus from Page no. 14 onwards.

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What is Ratnakar Bank Share price in Grey Market?

The IPO Grey Market is an 'over-the-counter market' where dealers may execute orders for 'preferred customers' as well as provide support for a new issue before it is actually issued.

Ratnakar Bank Share price in Grey Market / RBL Bank Share price in Grey Market is trading at 50-51 now. Means, brokers are betting at this premium price as of now.  During RBL Bank IPO news, brokers started betting at Rs 70-100 grey market price. But as things getting closure to issue date, there are no buyers even at Rs 50 now. 

Recommendation / Investment strategy – RBL Bank IPO

  • On the upper price band of Rs 225 and on FY15 EPS of Rs 7.23, P/E ratio works out to 31.1. Similarly, on last 3 years EPS of Rs 5.53, P/E Ratio works out to 40.69x. Means company is asking the upper band of issue price of Rs 225 for a P/E ratio between 31.1x to 40.69. These are subject to update once FY16 nos are published. As per prospectus is peers are trading in P/E ratio of 16x to 33.2x (Yes Bank, Kotak Bank, Indusind Bank) and the industry average is at 24.48. Hence the RBL Bank IPO price of Rs 225 is overpriced.
  • Company revenues grew at 83% CAGR in the last 5 years, which his strong point. Inconsistent margins and high issue price make this issue unattractive. Once they publish FY16 nos, we would have better clarity. High risk investors can invest in this IPO from a long term perspective. However, one should not expect for RBL Bank listing gains. If you get listing gains, you can do a party.

Disclaimer: I do have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy. Please consult your investment advisor before you invest in such high risk investment options.

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RBL Bank IPO  (Rathnakar Bank IPO) – What are the hidden factors


  • Gowrisankara rao

    The numbers taken into consideration were FY15 for valuations in this article. But actually FY16 numbers are available and published to make conclusions. Poor research

  • Karthik

    You cant use PE ratio for banks. Kindly use PBV with GNPA & NNPA for valuations.
    You can use NIM and CASA to compare with other banks.

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