RBL BANK - Is it a Good Long Term Story?

(umang_1991) #46

Expensive valuation. Wait for some correction, and trust me they will come but be patient.


RBL Bank Doubles Provisioning For Bad Loans Even As Profit Beats Estimates



(Vishal Bharti) #48

RBL continues to grow strongly in line with 2020 vision of 30-35% growth YoY. Equity stake sale expected in Q2.

Investor Presentation

Motilal Oswal View
With a diverse product portfolio, no legacy issues, highly capable management and low market share, RBL should report industry-leading loan CAGR of ~35% over FY16-19E. We expect stable/improving margins due to a
changing loan mix toward high-yielding loans, a sharp fall in cost of bulk deposits and improvement in CD ratio. Strong balance sheet growth is expected to drive operating leverage. We expect RoAs to reach 1.3% by FY19


Trading at more than 5X Book. Return expectations henceforth should be trimmed.

(Vishal Bharti) #50

You may be right, at the moment market is thinking differently on these super growers - be it Canfin or Bajaj Finance or Dmart…

(chets) #51

Aren’t provisions growing rapidly a bad thing? The gross and net NPA have also increased as per results.

(Vishal Bharti) #52

This is bad, but also consider the recent directives around it which make YoY comparison not an apple-to-apple comparison. Further, isn’t this provisioning increase in line with the other good banks like HDFC Bank, IndusInBank etc.? Its not specific to RBL.

(Yogesh Sane) #53

For financial companies, management generally give THEIR goals which are in terms of total size of the company like growth in loan book, interest income etc but as an investor we are more concerned about per share numbers.

e.g. A bank can grow its loan book, interest income and net profits at 30% but if they need to issue fresh capital to achieve that goal, EPS growth will be less that this number. How much less depends on at what price fresh equity is issued and how much ROE the bank or NBFC can generate.

Sustainable growth rate is ROE * (1 - payout ratio). Payout ratios are generally between 15-25% and ROEs are between 10-20%. That gives us a sustainable growth rate of 8.5 - 20%. I generally take the sustainable growth rate at 12-15%. Anything more than this will need additional equity. If the shares are selling for 4-5 times book value, raising additional equity will benefit existing sharesholders That appears to be the case with RBL. Their ROE is barely 11-12% and sustainable growth is just under 10%. If they have to growth at 30% they have to dilute.

The point I am trying to make here is management presentations generally present management’s point of view and not shareholders. these presentations very conveniently exclude long term EPS growth target which is what really matters to shareholders especially bank shareholders. Bank management gets paid based on the growth and size of the balance sheet and not growth rate of EPS so they set a target loan book growth and size and if that means raising additional equity they will do that and sometimes that can hurt shareholders.

(chets) #54

Thank you for the reply @Yogesh_s. As usual it is enlightening to newbies like us.

(Akhil) #55

Sir, isn’t growth in book value per share more important than growth in EPS for a bank?

(Yogesh Sane) #56

Yes. the key point here is book value per share and not just book value. Banks are generally valued on price/book basis so book value is important for banks. Managements generally exclude the per share numbers and only present the numerator. For financial companies, if the numerator (book value, assets, earnings etc) has to grow faster than sustainable growth rate, the denominator also has to grow although not at the same rate.

These presentations generally give a clue on what growth opportunities managements sees which a good piece of information. However financial companies on one hand have to comply with capital adequacy norms so they cannot leverage their equity too much and on the other hand borrowing-lending business being a commodity business they cannot earn a high ROE. Which means to actually realize these high growth opportunities they have to regularly issue capital.

Large private sector banks have routinely issued capital as they saw opportunities to grow faster than their sustainable rate and PSU banks have issued capital whenever they were bailed out by government after a crisis.

Growth in book value per share = EPS - DPS plus any premium they received by selling shares at a premium to book value. So EPS is important as it determines growth in book value. the last term becomes more important when shares are selling at a high p/b ratio. By selling shares at a huge premium to book (Yes bank raised Rs 5000 Cr at 4 times book), a bank can grow it book value much faster than earnings growth. If shares are selling close to book value, there is not much benefit to existing shareholders as growth in book value is offset by growth in number of shares so per share book value does not grow much.

(Vishal Bharti) #59

Vishwavir Ahuja on CNBC Weekender.
He remains super confident on projected growth of 30-35% every year as per 2020 vision… He tells Latha with full confidence that either they will achieve OR over-achieve the targets.
That may mean 35-40% growth for next few years.

(Vishal Bharti) #60

RBL with score of 95 is #1 in Customer Service among all banks in India, per BCSBI Code Compliance Rating-2017

All ratings at: http://www.bcsbi.org.in/Pdf/AnnexureinRating2017.pdf


(pkk123) #61

(Kritesh Abhishek) #62

RBL Bank soars 3% as board likely to consider preferential allotment. Read more here: http://www.moneycontrol.com/news/business/stocks-business/rbl-bank-soars-3-as-board-likely-to-consider-preferential-allotment-2317247.html

(Peabody) #63

With due respect Ambit always has a bearish view on the market and most of the stocks except probably PI Ind.Not much value to be attached on their views.


Divergence details on previous fiscal year (similar to what ICICI & Axis bank have reported)



Preferential allotment @515

(bbbhutra) #66

Book Value to increase to Rs 147.5 vs Rs 115.5 post fund raising.

So at 3.5 times, I believe it provides enough comfort when compared to its peers. Since its a small bank, it can grow at good pace, however, they have a long way to go to be compared with HDFC, Kotak etc.


In the AGM last week, there was one point about raising capital via preferential issue that was approved. Is the bank planning to raise further capital (they just raised 1600 crores last month)