Ratnakar Bank An Alpha Ideas Presentation
Sep 12, 2013
The History
Established in 1943 by local businessmen in Kolhapur Sleepy regional bank with local network Corrupt practices by directors-lending to own kin, forging dividend warrants etc Very small in size with a deposit base of only 1585 Crores
The Change
Vish Ahuja joins Ratnakar Bank in 2010 He is the former CEO of Bank of America in India He left in 2009 when Bank of America merged with Merrill Lynch
The New Team
Ahuja ropes in some of the best banking talent in India to join Ratnakar Bank
Joginder Singh Rana, a Citibanker for 22 years, is the chief operations officer. R Gurumurthy, head of corporate & institutional banking, from Standard Chartered Bank Tajinder Kumar , Head of HR from Deutsche Bank Singapore.
The New Team (Contd)
Rajeev Ahuja (formerly head-fixed income, Citi) Nitin Chopra (CEO, Bharti AXA Life) Sunil Gulati (Group president, Yes Bank) Suhas Sahakari (Head SMEs, Axis Bank) Shanta Vallury (Head liabilities ICICI Bank) Padmanabhan Kumar (Head Operations at HDFC Bank and Yes Bank) Naresh Karia (Country controller, Citi).
Why are they joining Ratnakar Bank?
These senior bankers want to replicate the success of HDFC Bank,Kotak Mahindra Bank and IndusInd Bank Via stock options, the top employees of these banks have amassed a fortune
The Stock Options Aspect
Employees got 88.42 L options in 2010-11 and 48.23L options in 2011-12 The exercise price of these options were Rs.46.50 This is a very bullish sign that the company will go public in the next 2-3 years
The Salary Aspect
Vishy Ahuja , despite experience of 30 years, is getting a salary of 74 Lakhs only (His peers get around 2.5 C -4 C) Other senior managements salaries are in the same range Its clear that the name of the game for these honchos is capital appreciation via stock options
Whats happening now?
Revamped board with superb and honest people Quadrupled employee strength from 565 to 1859 Branch network increased to 125 and ATM network increased to 184 Implementing Finacle to automate operations
Who is investing?
Raised 720 Crores capital from top class investors like HDFC , Becon,NorWest, TVS Capital etc in 2011 at 67 Rs/share Raised around 330 Crores capital in Jan 2013 from best of breed investors like Faering Capital,Ascent Capital, Gaja Trustee, IFC etc between 102-110 Rs/share
Why are investors investing?
The banking sector grows by 2-2.5 Times the GDP growth rate "The underpenetration of banking services in rural India, high potential growth rates, a conservative regulator and high entry barriers for new entrants make these small banks a compelling investment case," says Munish Dayal, partner, financial services, at Baring Private Equity Partners.
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Whats next?
Company growing aggressively-acquired Royal Bank of Scotlands business banking, credit cards and mortgage portfolios in India. Management is confident that bank can grow by 20%-30% year on year for the next couple of years IPO planned in the next couple of years
What price will it list at?
The current book value is around Rs.63 Assuming two good years of around 25% growth in book value, then the book value will be in around 90-100 range Given a probable P/B of 2.5, the price would be in the 220 250 range (Can be higher if management executes well)
Summary
A great opportunity to invest in a pre-IPO situation Expect handsome gains on listing Since the bank is very small, there is tremendous room for growth. The stock can be a potential multi bagger over the next decade like Yes Bank, IndusInd Bank etc
