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05-06-2023 11:32 AM | Source: Emkay Global Financial Services
Buy RBL Bank Ltd For The Target Price Rs.225 - Emkay Global Financial Services
News By Tags | #413 #872 #2259 #1302 #3646

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* RBL delivered in-line PAT at Rs2.7bn/1% RoA, per guidance, on the back of continued margin uptick (up 27bps QoQ to 5%) and contained LLP. Going forward, the bank has guided for steady improvement in RoA (+10-20bps p.a.)/RoE (100-150bps) over FY24-26E, with clear focus on building itself into a granular retail bank.

* Credit growth improved to 17% YoY/5% QoQ, mainly led by healthy disbursements in the retail/SME book. MFI disbursements accelerated (up 70% QoQ), leading to 23% YoY growth, while card growth stood at 24% YoY. Bank guides for +20% CAGR over FY24-26E, with retail share at 60-65% and mainly led by growth in core retail portfolios (Card + MFI + BB) and the relatively-new segments of HL/AFH, VF, Gold and MSME.

* Bank believes that the MFI stress-flow is largely behind, while card portfolio stress remains within acceptable levels. Lumpy wholesale stress, too, is largely behind, and the bank would look for some resolutions in the medium term. Factoring-in the better growth trajectory, margin/fee delivery and lower LLP, we expect the bank’s RoA/RoE to improve to 1.3%/13% from 0.8%/7%, without factoring any capital dilution, which we believe the bank may require to achieve the guided growth trajectory.

* The stock is currently trading at lower valuations of 0.7x FY24E ABV/0.6x FY25E ABV, largely ignoring the broader recovery and growth potential under the new management. We retain BUY with TP of Rs225/share, based on 0.9x FY25E ABV.

* Growth coupled with asset re-pricing led to continued margin uptick: Overall credit growth improved to 17% YoY/5% QoQ, mainly led by healthy disbursements in the retail/SME book. MFI disbursements accelerated (up 70% QoQ), leading to 23% YoY growth, while card growth was at 24% YoY. Overall deposit growth remains relatively moderate at 7% YoY/4% QoQ; thus, the bank would incrementally focus on accelerating retail deposit growth as well. Amid moderate deposit growth, the bank dipped into excess liquidity on the balance sheet, leading to drop in LCR to 126%. This, coupled with strong growth mainly led by retail (Cards/MFI) and asset repricing, resulted in continued uptick in margin (+ 27bps QoQ) to 5%. Bank guides for +20% CAGR over FY24-26E, with retail share at 60-65% and mainly led by growth in core retail portfolios (Card + MFI + BB) and the relatively-new segments of HL/AFH, VF, Gold and MSME. This should support margin/fee trajectory in FY24-26E, leading to healthy core-profitability.

* NPA formation to moderate, as MFI/Card stress eases: Despite elevated slippages at Rs6.8bn/4.5% of loans higher recoveries/w-offs, led to a 24bps QoQ decline in the GNPA ratio to 3.4%. Specific PCR remained flat, yet healthy at ~68%. The restructured book moderated to 1.2% of loans, due to relapse into NPAs, with the balance being business loan (largely secured). Bank believes that MFI stress flow is largely behind, while card portfolio stress remains within acceptable levels. Lumpy wholesale stress too is largely behind and would look for some resolutions, like CCD, McLeod Russell and so on, in the medium term.

* We retain BUY: Factoring-in the better growth trajectory, margin/fee delivery and lower LLP, we expect the bank’s RoA/RoE to improve to 1.3%/13% from 0.8%/7%, without considering any capital dilution, which we believe the bank may require to achieve the guided growth trajectory. We retain BUY on the stock, with a TP of Rs225/share based on 0.9x FY25E ABV. Key risks: Management attrition, sharp rise in CoF leading to margin derailment, and continued assetquality stress in Cards/Business loans.

 

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