RBL Bank Ltd. share price target

20 July 2019 RBK reported 1QFY20 PAT at INR2.7b (41% YoY growth, inline) though the guidance on asset quality will drive elevated credit cost and impact earnings trajectory over the coming quarters. GNPA increased 4.6% QoQ to INR7.9b (1.4% of loans) while NNPA stood flat at INR3.7b enabling 230bp QoQ improvement in PCR to 52.9% (69.1% including TWO). NII grew 48% YoY to INR8.2b, led by 35% YoY growth in advances and 8bp QoQ expansion in the margin to 4.3%. Core fees increased 41% YoY (+5% QoQ) to INR4.1b, driven by credit cards (+66% YoY; ~47% of total fees). Loan book grew 35% YoY, led by strong growth in retail book (+62% YoY), while wholesale book grew 23% YoY.

Our recent interactions with RBK suggest less than commensurate credit risk, achieved via tight (and differentiated) credit policies. RBL Banks (RBK) focus on niche credit segments (credit cards and micro finance) gives it better spreads, system-beating growth and a multi-year addressable opportunity that enables it to outperform peers. Our positive stance is reflected in consistently robust operating metrics. RBKs scorching pace of growth along with its unconventional (but consciously chosen) evolution has invited skepticism. Maintain BUY with a TP of Rs 803 (3x FY21E ABV of Rs 268).

With an unblemished record, abundant opportunity and focus on high yielding granular credit segments, RBK will sustainably outperform peers on growth and margins. Op-lev and credit costs (esp. on the cards portfolio) are key monitorables, as they drive RoAA expansion hereon. With a book value-accretive fund raise in FY20, RBK can get capital to fuel its ambitious growth aspirations. Our opex (29% CAGR) and flattish NIM assumptions (3.9%) over FY19-21E provide upside risk to estimates. An all round 4Q show and an impending (book accretive) fund raise justify our positive stance on RBK. Maintain BUY with a TP of Rs 803 (3x Mar-21E ABV of Rs 268).

We reiterate RBL Bank as a BUY with a Price Target of INR 820 (2.8x

Maintain BUY with a TP of Rs 626 (3x Dec-20 ABV of Rs 208.5). Healthy loan (+35% YoY) and SA (+8% QoQ) growth, coupled with strong P/L performance characterised by rising NIMs (~4.12%, up for the 8th straight qtr), healthy fee income growth (+51%) driven by credit cards indicate a repeat of 2Qs performance. Asset quality was sequentially stable with continued improvement in coverage (63.2%, +180bps).

28 January 2019 RBL's 3QFY19 PAT was in line, increasing 36%/10% YoY/QoQ to INR2.25b growth and 4bp QoQ expansion in margins to 4.12%. During 9MFY19, PPoP grew by 46% YoY, while PAT grew 36% YoY. Core fees grew 50% YoY (100% YoY growth in card fees). Strong opex control enabled 50% YoY growth in PPoP while C/I ratio stood stable at 51.6%. Loan book grew 35% YoY led by strong growth in retail book (51% YoY). The share of retail loans increased 206bp QoQ to ~43%. CASA deposits increased 38.5% YoY (9.6% QoQ) led by robust 56% YoY increase in CA deposits. CASA ratio improved 60bp YoY to 24.6%.

The bank is planning to expand its MFI portfolio from the current nineteen states by adding two-to-three more states in the coming months, (b) Incremental growth is due to new customer addition (22% of its customers are new to credit), rather than an increase in the average ticket size. This is evident from the average ticket size, which currently stands at INR27K (nearly stable for large few years) whereas the maximum ticket size is capped at INR40K, (c) RBL Bank has deployed ~400 employees to man the BC branches to ensure proper checks and balances at the time of disbursing the MFI loans, (d) Management has guided MFI portfolio mix to improve to ~13%-15% (from current 9% levels) and (e) Management is building in ~1.5% credit cost in its MFI portfolio and is expected to build some contingent provisions (going forward) to counter event specific risks.

RBL Bank's asset quality continues to remain stable as Gross non-performing asset (NPA) ratio stood flat sequential at 1.4% and Net NPA ratio declined marginally by 1 bp QoQ to 0.7%. Provision coverage ratio (PCR) improved further by 104 bps QoQ to 61.5% on the back of higher provisions. Notably, as per the management the bank's exposure to IL&FS; group is just ~Rs15cr (0.03% of loan book) in the form of a corporate guarantee secured with 100% cash collateral. Further, exposure to NBFC and real estate is largely towards better-rated companies where the management indicated that the risk of default is quite low. We expect asset quality to continue to show broadly stable trend (Gross/Net NPA ratios of 1.5%/0.8% by FY20E) given the bank's...

Maintain BUY with TP of 618 (3xSept-20E ABV of Rs 206). RBKs 2Q was impressive with industry leading broad based growth (37%), strong fee traction (+61%), 7th consecutive qtr of sequential NIM (4.08%) improvement and stable asset quality (net stressed book at a mere 80bps). The sustained NIM uptick was on account of MCLR reset and increase in the share of the high yielding retail portfolio.