IGI Logo

RBL Bank continued to report strong profitability, up 43% YoY/6% QoQ to Rs2.9bn/1% RoA on account of strong credit growth, lower opex and contained provisions. NIM was down 17bps QoQ to 4.8% from its peak of 5% due to higher CoF, but the bank expects better portfolio mix towards retail to keep margins healthy. This coupled with improving fees (including payments/cards) and contained opex should lead to 30% core PPoP growth over FY23-26E. Despite moderation in NPA , the bank has guided for elevated LLP in FY24E and would like to maintain a contingency buffer to guard against any potential assetquality hiccups. Factoring in better growth/NIM, we have revised our earnings estimates for FY25/26E by 1/6% and expect the bank to deliver healthy RoAs/RoEs of 1- 1.3%/9-14% over FY24-26E vs. 0.8%/7% during FY23. With better expected delivery on growth/RoA/RoE, we now value the bank at 1x its June 25E ABV and revise the TP to Rs275/share from Rs225/share earlier.

Margin slips QoQ but outlook positive due to better portfolio mix towards retail

RBL Bank reported 21%/4% credit growth during Q1, led by healthy growth in the retail book. Within retail, cards/MFI as well as new business segments such as mortgages and VF have also delivered strong growth. A slight decline in mortgages QoQ was mainly due to the bank’s decision to move away from one partner NBFC to another, thus leading to some business disruption. Within the cards business, the bank has been focusing on growing the non-BAF book by way of partnerships and mining ETB customers. Overall, deposit growth remains moderate at 8% due to healthy internal liquidity, but it is expected to accelerate in H2 as credit growth inches up. NIM during Q1 slipped 17bps QoQ from its peak to 4.84%, as seen across banks; however, the bank has guided for structurally better NIM due to changing portfolio mix towards retail/SME.

Moderate slippages in Q1 lead to contained LLP, but the bank plans to build a contingent buffer

Gross slippages moderated to Rs5.6bn/3.7% of loans, but higher write-offs led to continued moderation in the GNPA ratio to 3.2%. Bank expects asset quality to improve steadily with incremental stress flow from back-book including MFI/cards moderates. The bank also broke a mortgage partnership in view of some early signs of the stress pool, indicating its pro-active risk management strategy. RBL Bank has reached the 70% PCR mark during Q1, but the bank would continue to write off its legacy NPA book and, thus, should keep LLP elevated at 1.4%. Additionally, the bank plans to build a contingent buffer over the medium term, which we believe should keep the bank’s credit cost elevated over 1.4-1.5%.

Retain BUY with a revised TP of Rs275

Factoring in the improved growth trajectory, margin/fees and contained LLP, we expect the bank’s RoA/RoE to improve to 1.3%/14% in FY26 from 0.8%/7% in FY23. With better expected delivery on growth/RoA/RoE, we now value the bank at 1x its June 25E ABV and revise the TP to Rs275/share from Rs225/share earlier. Key risks: Inherent assetquality risk in cards/business loans and growth/margin slowdown.

To Read Complete Report & Disclaimer Click Here

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354

Above views are of the author and not of the website kindly read disclaimer