Buy RBL Bank Ltd For The Target Price Rs.205 -Yes Securities
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Our view – No material change in business model
Gross slippages, while lower than peak levels, were still elevated in the absolute sense
The lion’s share of the slippages emerged from the non-wholesale book. The microfinance, credit cards and other retail segments contributed Rs 1.52bn, Rs 2.41bn and Rs 2.13bn worth of gross slippages, respectively, during the quarter. NPA provisions for the quarter amounted to Rs 3.85bn. On the other hand, there were write-backs of provisions from the restructured book and written off accounts amounting to Rs 0.64bn and Rs 0.95bn, respectively. NPA provisions, along with all non-NPA provisions, provide an 88% coverage on GNPA, which is comparably materially lower than at other key private sector banks.
Growth performance for the quarter was considerably improved on sequential basis
Total advances have grown 6% QoQ. This was the strongest sequential growth performance since March 2019. Retail advances have grown 7% QoQ whereas wholesale advances have grown 5% QoQ. Within retail, bread-and-butter businesses viz. credit cards and microfinance have grown 6% QoQ and 10% QoQ, respectively. Further, key new businesses viz. housing loans and rural vehicle finance (tractor loans) have grown 20% and 44% QoQ, respectively, from a relatively small base.
While no explicit margin guidance was provided, the commentary sounded neutral
Management conceded that there will be a catch up in cost of deposits. RBL is susceptible to a material rise in cost of deposits since, while traction for LCR retail deposits is healthy (they rose 6% QoQ), the share of LCR retail deposits is low at 42.5% of total deposits. Management, simultaneously, flagged that certain factors would be supportive of margin and these are asset re-pricing, reduction of excess liquidity and rise in share of cards and microfinance in loan book.
We maintain ‘Buy’ rating on RBL with a revised price target of Rs 205
We value the bank at 0.85x FY24 P/BV for an FY23E/24E/25E RoE profile of 6.9/8.2%/10.5%
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