Investors shun RBL Bank but are worries reasonable or overdone?
Value investing is gathering pace and we have been talking about it for quite some time now. But today we decided to focus on safety measures you might consider while walking down the path of value investing.
As you might have noticed, RBL Bank has come under tremendous pressure lately ever since the RBI has appointed an additional director at the bank’s board for a term of two years or till further orders. This announcement was made on December 25, 2021.
Following this development, Mr Vishwavir Ahuja, the then MD&CEO went on leave with immediate effect, and the board appointed Mr Rajeev Ahuja as the interim MD&CEO.
Moreover, various media reports suggest that the bank has written off a loan worth Rs 300 crore in just 7 months of sanctioning it.
The stock has reacted negatively to these developments and has lost ~40% in just two months. The last two weeks have witnessed a cut of 23%.
Has such a massive fall made RBL Bank attractive since it now trades at a price-to-book (P/B) multiple of just 0.66 times? Let’s find out.
Story in detail
Perhaps this is the time to dwell deeper and take stock of events in a chronological order.
In June 2021, RBL Bank sought RBI’s approval to extend the term of Mr Vishwavir Ahuja as MD&CEO for three years, against which RBI offered just one year of extension.
Now only time can tell whether the appointment of the additional director is only to expedite the process of finding a suitable candidate or there’s anything more to the story.
To be fair, RBI in its press release dated December 27, 2021 has clarified that RBL Bank is well capitalized and its financial position remains satisfactory. Along with RBI, the RBL management has also stated that there’s no need for depositors and other stakeholders to hit the panic button.
Does that mean everything’s hunky dory? We don’t know. But going by the stock price-volume behaviour lately, it looks like markets are clearly showing discomfort with the recent developments.
As per RBL Bank’s disclosures to exchanges, it held discussions with multiple analysts and investors between November 27, 2021 and December 27, 2021. The list included some of its existing high-profile institutional investors, hedge funds, mutual funds and global brokerage companies amongst others.
On December 01, 2021, 28 entities/investors had attended a group call, including the likes of HDFC Life Insurance Company which holds 1.64% stake in RBL Bank.
Interestingly, White Oak Capital which was also a participant on the group call, held one more round of exclusive discussion with the Bank on December 03, 2021.
And mind you, there’s nothing unusual about a company having such a hectic schedule of analyst/investor meets but in the case of RBL Bank, the context is paramount.
Again, we don’t know what was discussed over the analyst/investor meets/calls.
As per the company disclosures, DSP Equity Opportunities Funds held 1.01 crore shares of RBL Bank as on September 30, 2021. BofA Securities Europe Sa – Odi had a holding of 2.23 crore shares in the bank towards the end of Q2FY22.
On December 27, 2021, the stock tanked 18%. That day the stock closed at Rs 141. Thereafter it hasn’t made any meaningful recovery so far.
Between December 28, 2021 and January 04, 2021, nearly 6.75 crore shares were traded daily on an average in the cash segment on NSE—3.5 times the 2-year average. Is the selling not over yet?
Meanwhile, the management tried to pacify the market nerve by repeatedly assuring that all’s well with the bank. Nothing seems to have worked so far.
Now it remains crucial to see how the shareholding pattern of RBL Bank has changed in the December quarter. You should also keep an eye on how some of its marquee shareholders react to the recent development.
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Do financials offer any clue on the stock price debacle?
In Q1FY22, the bank had reported a loss of Rs 459 crore for which it had cited additional prudential provisioning as the primary reason. Q2FY22 results apparently didn’t give any additional clue about the recent stock price crash.
In fact, in the Q2FY22 management review, the bank had exuded confidence that the worst slippages in the credit card business were already behind it. And it guided for lower slippages in Q3FY22 onwards, not just in the credit card portfolio but also in business loans segment too.
On this backdrop, Q3FY22 results would be crucial to track and until further clarity emerges on the leadership front, the stock is likely to remain a value trap, isn’t it?
Moral of the story
Not everything that glitters is gold and not everything that looks cheap is attractive; especially when the market isn’t convinced about something unknown.
Finding value requires you to deconstruct the story and still try to make sense of the broken pieces. Let’s not get carried away by the massive fall in RBL Bank’s stock price.
Markets are more often right than wrong.
At a time when big institutional investors appear clueless or rather worried about the recent developments at the RBL Bank, going against the tide might be a gutsy move!
You see, the management credibility is a qualitative factor of analysis and conventional value matrices don’t catch it easily but the stock price performance often reflects it.
Did you know?
RBL Bank launched its IPO in August 2016 at Rs 225/share. It was subscribed 70 times. QIB (Qualified Institutional Buyer) and NII (Non-Institutional Investor) segments had received 85 and 198 times higher bids respectively. By 2019, the stock skyrocketed and crossed the Rs 700/share mark. Since then, there’s been a relentless fall.
You see, if you invest in an IPO, you need to keep an eye on market dynamics.
You may also like to read: Hindustan Copper: Will it be a showstopper in 2022?
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