Buy RBL Bank; target of Rs 350: Emkay

Emkay's research report on RBL Bank

RBL has posted strong 29% PAT growth YoY at Rs3.7bn/1.2% RoA, mainly led by inline healthy NII growth/lower provisions, as it reversed AIF provision to the tune of Rs0.9bn. Credit growth was slightly moderate at 19% YoY, due to the bank’s strategy to prune the low-yielding corporate book and, instead, focus on retail, which should be margin-accretive. This reflected in core margins being largely flat at 5.45%, incl. interest on the IT refund improving by 22bps QoQ to 5.67%. The mgmt guides for nearly-flat margin in 2Q which should improve thereon, due to better portfolio mix. Seasonal + election-related stress is reflected in the higher transient MFI space, but the bank remains resolved to build contingent provision buffer. With industry-wide noise on stress in unsecured loans incl MFI on the rise, we build in some growth moderation and higher LLP, leading to a 2-8% cut in FY25-27E earnings. But we still expect the bank to deliver gradual improvement in RoA to 1.1-1.3%.

Outlook

We retain BUY with TP of Rs350/sh (1.2x Jun-26E ABV), taking comfort on valuations. Given that CET 1 is now at 13.9%, we expect the bank to raise capital sooner than later.