RBL Bank Ltd. share price target

RBL Bank Ltd. is a fast-growing private sector bank with a network of 332 branches and over 6.9 million customers. It offers various services, including corporate and institutional banking, commercial banking, retail...

We have cut earnings estimates for FY20/21E by 25/19% to factor higher slippages and consequent provisions. A fund raise is still possible, and will be crucial for RBL to provide for the upcoming stress and maintain growth rates. We are factoring Rs 35bn (at Rs 500/sh), pushing up est. ABVs by 27/20% over FY20/21E. Guidance on stress, and concentration commentary are red flags that underpin our DOWNGRADE to NEUTRAL. We value RBL at 2x Jun-21E ABV (vs. 3x earlier). Our TP is Rs 512. RBK ticked most boxes in 1QFY20, but guidance on asset quality (potential corporate slippages of Rs 10bn) is seriously disconcerting at the very least. DOWNGRADE to NEUTRAL. Sensitivity to asset quality outcomes is high.

Sector: Banking /Mid-Cap | Earnings Update 1QFY20 Background: RBL bank (RBL) came into operations in 1943 and was incorporated as a small, regional bank in Maharashtra with two branches in Kohlapur and Sangli. Post the change in the management team in 2010, it has been one among the fastest growing private sector banks and now has 332 interconnected branches and 376 interconnected ATMs spread across 20 Indian states and union territories serving ~6.9mn customers. The bank offers a comprehensive range of banking products and services customized to cater to the needs of large corporations, SMEs, agricultural customers, retail customers and development banking & financial inclusion (low...

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%.