Buy RBL Bank; target of Rs 633: Cholamandalam Securities

Cholamandalam Securities' research report on RBL Bank

RBL's advances grew by 35.2% YoY to INR 498.9bn in 3QFY19, missing CSEC's estimate of 40.3% YoY growth. The growth predominantly came from Retail assets (67% YoY), DB&FI segment (42% YoY) and C&IB segment (27.9% YoY).The wholesale & retail mix remained at 57% and 43% respectively. Based on their internal ratings, ~96.6% of the advances is offered to BBB- or higher rated borrowers. The management expects loan book to grow at 30-35% till FY20E. Deposits grew by 35.1% YoY (above CSEC's estimate of 31%YoY) to INR 522bn supported by increase in CASA base. CASA deposits grew by 38.5%YoY taking CASA ratio to 24.6% from 24% in 3QFY18. The management reiterated that it targets a growth of 0.75-1% every year, till FY20 in CASA ratio. The digital acquisition channel now contributes 40-50% of new (deposit) account openings, implying granularity in funding profile coupled with low cost of acquisition.

Outlook

Robust loan growth trajectory and well-maintained asset quality coupled with healthy margins, rapidly growing fee income and expected improvements in opex due to technological up gradation, gives a positive outlook for the bank. Hence, we give the stock a BUY rating, with a target price of INR 633 valuing at 3X of FY21E P/ABV.

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Read More First Published on Mar 1, 2019 04:09 pm