Buy RBL Bank; target of Rs 642: Cholamandalam Securities
Cholamandalam Securities is bullish on RBL Bank has recommended buy rating on the stock with a target price of Rs 642 in its research report dated July 19, 2018.
September 18, 2018 / 02:25 PM IST
Cholamandalam Securities' research report on RBL Bank
RBL’s advances grew by 35.6% YoY to INR 422bn in 1QFY19, marginally lower than our estimate of 39% YoY growth. As expected this growth came predominantly from Business Banking segment (62% YoY), DB&FI segment (39.4% YoY) and C&IB segment (31% YoY).The wholesale & retail mix stood marginally altered at 59.2% and 40.8% respectively. Based on their internal ratings, ~94.2% (vs 91.8% till 1QFY18) of the advances is offered to BBB- or higher rated borrowers. The management expects loan book to grow at 30-35% CAGR over FY19-20E. Deposits grew by 26.9% YoY (below our expectation of 32%YoY) to INR 450bn supported by increase in CASA base. CASA deposits grew by 40.2%YoY taking CASA ratio to 24.4% from 22.1% in 1QFY18. Going ahead, the company expects a growth of 0.75-1% every year, till FY20 in CASA ratio. Net Interest Income grew by 46.1% YoY (above our expectation of 34.1%) and stood at INR 5.5bn led by growth in advances and margin expansion. Reported NIM improved by 50bps YoY (6bps QoQ) to 4.04% primarily led by robust growth in retail advances, coupled with a 20bps YoY rise in yield on advances. Sequentially deposits demonstrated muted growth, which coupled with increase in savings interest rate resulted in a 10bps rise in Cost of funds (QoQ). Nonetheless NIMs improved owing to rising yields. Going ahead, the management expects Cof to notch up a tad bit, but NIMs will continue to be at 4% levels, owing to improving overall yields led by both higher yields in wholesale segments and robust growth in high yielding retail segments.
Robust loan growth trajectory and well-maintained asset quality coupled with healthy margins and improving Cost-Income ratio gives a positive outlook for the bank. We maintain the buy rating on the stock, with a target price of INR 642 valuing at 3.4X of FY20E P/ABV.
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