Rights issue
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How do i subscribe to the rights issue. I donât have net banking. It says that i can go to linkintime and their I can apply but there.
When i go to linkintime, it shows that certain quantity has been alloted but how do i buy those rights issue because there is no option of payment showing there.
The issue is open till 14 March 2024. You can activate net banking and then apply.
Will these rights issues show up in ICICI demat âDemat Holdingsâ page like it did for India Bulls Housing Finance Rights Issues? From there I was able to sell the Rights Issues like I usually sell shares.
Itâs showing on my Zerodha account. You can check your ICICI demat
The South Indian Bank RE will show up in your demat which you can sell. RE is rights entitlement. If you sell RE it means youâre selling your rights to buy shares at lower price to someone else.
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I would like to consider that option because in the case of India bulls the RE was selling for up to Rs 46 and with the RE I could buy for Rs 150. So, I could sell the RE for say 42 and buy the shares from the open market for Rs 180. However, we get taxed on Rs 42 one receives on selling the rights, if I am not mistaken.
In the case of South Indian Bank, I have the following options:
- Maintain my proportional ownership in South Indian Bank at a discount of Rs 8 from the CMP
- Decrease my proportional ownership in South Indian Bank, sell the RE at around Rs 7.50 or whatever the current traded price is for the rights buy any share which I think is undervalued
- Not do any of the above in which case my ownership in South Indian Bank gets diluted anyway without the income from selling the RE.
Since 3 is not a good option, I might as well go with option 2 if I donât want to do option 1.
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The stock price has corrected from almost a peak of 34 to CMP of 28ish. Is this the effect of rights issue? There is a fall in RE price as well. Can someone explain that the fall is because of the rightâs issue or there has been some news around the bank which is causing the price to fall?
I think the fall is mostly due to the rights issue. Many have dumped their shares at higher price to buy shares through rights issue at lower price. Let us look at the calculation as per yesterdayâs price
South Indian Bank was trading at around 28.8 yesterday
South Indian Bank RE (Rights Entitlement) was selling at 5 yesterday
Suppose you have 1000 shares. You sell those 1000 shares at 28.8. You get 28000
You buy 1000 RE shares at 5. Your outflow is 5000
These RE give you the rights to purchase shares at 22.
So you apply for 1000 shares in rights issue at 22. Your outflow is 22000
Your total outflow is 22000+5000 = 27000
Your inflow is 28800. You gain 1,800. Your final gain might be less after brokerages and transaction costs.
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Minus the tax on capital gains.
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Their disclosure filing related to their credit card business.
South Indian Bank halt co-branded credit card activities following RBI guidance. South Indian Bank suspends on-boarding new customers until full compliance achieved.
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The main comfort is coming through valuations and further the major part of the provisioning has been done in first two quarters and in this quarter the provisioning will be minimum. The last quarter in general represents the highest growth which shall improve the existing NIM but will not be able to match the guided 3.5% for sure. Here the price of the rights issue keeps us comfortable.
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it was expected to not be great. NIMS were going to compress etc.
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Does anyone know, what transpired in the AGM?
The bank has a relatively longer history of trading below the book value. But this was largely post 2018, during periods in which the bank had poor RoE/RoA and increasing NPA. Right now the RoE is about 13.8% , NPA is on a downward trajectory , the new book is at the moment shown as high quality assets.Even then the bank is traded below its adjusted book.
What could be the reason it is trading so? I assume the market knows something that I donât know or Mr market is depressed and it is underpriced. Isnât it at a far better position than it was in 2018 when there was a flood in Kerala and when the actual returns to shareholders as well as anticipated returns to shareholders were coming down to single digits? What do you think you know that I donât know?
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I think the reason for poor valuations could be very low RoA, super slow loan book growth & very high leverage, RoA is less than 1% and the RoE of 13.8% as highlighted by you is purely coming out of excessive leverage. Excessive leverage also restricts AUM growth hereon without any further equity dilution. Worst part is that if this equity dilution happens at such a low P/B multiple, it will be quite bad for the existing shareholders. These are just my two cents.
P.S: I donât track this counter actively any more but held it for quite some time in the past, classic value trap in my opinion.
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Thanks for sharing insights on what could be the possible reasons for the kind of valuation. I am debating each one of them based on how I see it.
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The major insight is that RoA should be a better metric here because the bank seems to have excess leverage. RoA is close to 1% which is lower than Federal Bankâs 1.22% but higher than Yes bankâs 0.3% last FY. While it is a good relative measure I find it difficult to use it to make an interpretation on whether something should trade below the book.
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The second one is linked to the first in the sense that RoE could be misleading because the bank is taking excessive leverage. I donât know what could be a good metric here but I assume the CET-1 could be the one which banks report and give importance to. The leverage the bank is taking with its core capital is right now above 16.5% and is comparable to the best banks . Before dilution the ratio was at twelve plus region. I donât know how good or bad this can be . However, this is far above the regulatory requirements so I assume the bank is not reckless on this aspect.
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The third one is on equity dilution. The recent one increased number of shares by about 25% and thus diluted stake by 20%. If I read it right , the one before this was only in 2017. The board seems to have approved further dilution and I thought it was just a procedural part. Now I wonder if they plan to grow in low double digits why they require more core capital. So does the market feel like there is more dilution coming ?
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The other aspect is on growth. Yes they donât have aggressive growth plans but to make it clear my curiosity is only regarding why it is trading below the adjusted book. I do not want to compare it with say Federal bank or Yes Bank and say they have a higher relative valuation. Even in the hypothetical case of zero growth why should something that gives 13+% return trade below the adjusted book. Does the market feel like the 13+% return is one off? I assume that when a bank is traded below the book the market expects it to further erode the capital by either giving loans that will go bad or by giving loans that will not earn enough to cover its cost of capital. I donât see indicators for that right now because the bank seems to be on the path to recovery but are there things like âpossible dilutionâ which the market is factoring in.
PS: Invested from Rs 11 range.
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- GNPA -10 basis points down QoQ, NNPA 13 basis points down QoQ, Special Mention Account -2 goes down from 0.7% of advances to 0.6% of advances.
- NIM comes down 2 basis points to 3.24%. CEO says it is mainly on account of certain charges taken out of financial income and placed it in other income. There are no material changes. Provision Coverage increases marginally and CASA comes down marginally.
- RoA is at 1.07% and RoE is at 13.71% after all the dilution.
Mr. Market thinks it is not good enough and it should trade at 0.7 of book value and below the adjusted book!!
Mortgage loans, Home loans and Credit cards grew aggressively. Credit card is just 7% of AUM; Personal loan is 11%.
YoY growth in advances is 14%. The Bank wants to keep Credit - Deposit ratio at the current level as aggressive deposit growth and a decrease in C-D ratio can increase the cost of funds.
What is that the market is discounting?
Mr Market does not seem yet to be convinced by the change in underwriting practices in the Bank. Also, my guess is that the market is estimating that NIM can come down as RBI reduces the repo rates. But can it bring down the NIM to a scenario where the RoE is severally down? One cannot know but at the moment it looks unlikely. I think it is at a discount, but you never know!
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