Dhanlaxmi Bank RI review - (May apply)

•    The bank is a scheduled bank having a standing of over 97 years.
•    It marked a setback and still has carried forward losses that it keeping it away from dividend distribution, despite reporting profits.
•    Based on its recent financial performance, the RI appears fully priced.
•    RI is at a discount of around 27% based on its last traded price of Rs. 28.79.
•    Well-informed investors may park funds for medium to long term.

PREFACE:
This RI is opening on January 08, 2025, and its Letter of Offer is dated December 19, 2024, but the said documents were uploaded on BSE Web site only this noon (i.e. on January 07, 2025). It appears that such practices are rising off late and with deliberations. Regulatory body has to do something in this regard. 

ABOUT COMPANY:
Dhanlaxmi Bank Ltd. (DBL) is a private sector bank, incorporated in November 1927 at Thrissur, Kerala and have been in existence for more than 97 years. It became a scheduled commercial bank in 1977. The Bank offers a wide range of banking and financial services primarily to retail, corporate, SME, and microfinance customers. As of September 30, 2024, it had a wide presence through a network of 560 customer outlets which includes 17 business correspondents, 261 branches and 282 ATMs across 14 states and two union territories. Further, as of the same date, 58 of its branches are located in metropolitan cities, 71 in urban areas, 112 in semi-urban areas and 20 branches in rural areas. Its overall customer base is approximately 0.16 crore as of September 30, 2024 with total deposits amounting to Rs. 14631.48 crore and total advances of Rs. 11018.35 crore as of the same date.

DBL is a professionally managed bank, governed by a Board of Directors and supported by a senior management team. The Bank offers a wide range of products and services for individuals, non-individuals, and corporate customers. Through its corporate and commercial portfolio, bank caters to the business needs of multinational companies, public enterprises and private companies. It provides deposits, loans and finance facilities to customers by offering a variety of products such as term loans, short term loans, working capital finance including cash credit, export credit, bill discounting, letters of credit and guarantees. The bank also extends financial support to the priority sectors including agriculture, MSME, affordable housing and education.

As part of retail banking, it offers a variety of personal loans such as home loans, gold loans, vehicle loans, education loans, loan against property, lease rental discounting and business loans to retail customers. During the six-month periods ended September 30, 2024, and September 30, 2023 and the Fiscal 2024 and Fiscal 2023, retail advances were 53.60%, 47.14%, 49.99% and 43.59% respectively of its total advances. As of September30, 2024, it had 1724 employees comprising 5 contractual employees on its payroll.

ISSUE DETAILS:
The bank is coming out with its Rights Issue (RI) of 141686767 equity shares of Rs. 10 each at a fixed price of Rs. 21 per share to mobilize Rs. 297.54 cr. The RI opens for subscription on January 08, 2025, and will close on January 28, 2025. The bank is offering RI in the ratio of 14 for 25 to its eligible stakeholders as of the record date of December 27, 2024. The full amount it to be paid on application for the number of shares applied. Post allotment, shares will be listed on BSE and NSE. The bank is spending Rs. 7.98 cr. for this RI process, and from the net proceeds, it will utilize Rs. 289.56 cr. for deployment in Bank’s Tier-1 capital base to meet its requirements.

The RI is solely lead managed by BOB Capital Markets Ltd., and KFin Technologies Ltd. is the registrar to the issue. 

Post-RI, bank’s current paid-up equity capital of Rs. 253.01 cr. will stand enhanced to Rs. 394.70cr. Based on the RI pricing, the bank is looking for a market cap of Rs. 828.87 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, it has posted a total income/net profit/ - (loss) of Rs. 1145.75cr. / Rs. 49.36 cr. (FY23), Rs. 1359.55 cr. / Rs. 57.82 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it posted a net profit of Rs. 17.81 cr. on a total income of Rs. 718.58 cr. However, due to its carried forward losses, the net loss carried forward as of September 30, 2024 stands at 743.42 cr.

Its net NPA ratio stood at 1.16% (FY23), 1.25% (FY24), and 1.12% (H1-FY25). 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy post listings of RI shares based on its financial performance and future prospects. 

SCRIP PERFORMANCE: BASED ON BSE WEBSITE DATA: SCRIP CODE: 532180 (FV Rs. 10).
The scrip last closed on cum-right basis at Rs. 44.36 on December 26, 2024, and opened on an ex-right basis at Rs. 32.57 on December 27, 2024. Since then, it has marked a high/low of Rs. 33.80 / Rs. 29.52. The scrip last closed at Rs. 28.79 as of January 07, 2025. For the last 52 weeks’ it has posted a high/low of Rs. 47.61/ Rs. 24.26. 

The promoters’ holding has been constant at 0.00% for the last three quarters ended with Sept. 30, 2024. The counter is well managed by vested interests above the RI price to lure investors.