Well poised for strong growth - Moneycontrol

Apr 4, 2018 - We value RBL at 3.4x FY20E P/ABV to arrive at TP of Rs 650. ... Source: Company, Axis Capital, CMP as on 27th Mar 2018 ..... ASL is a subsidiary company of Axis Bank Ltd. Axis Bank Ltd. is a listed public company and one ...
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04 APR 2018

RBL BANK

BUY

BANKS & FINANCIAL SERVICES

Target Price: Rs 650

Well poised for strong growth We met with the senior management of RBL and came back confident on its outlook and execution capabilities. Growth rates to remain healthy with benefits flowing from multi-channel distribution network. NIM to remain intact with granular retail franchise. Some near-term challenges persists like asset quality pain in farm loan book and credit costs linked to demon-impacted MFI loans, which will ease over next few quarters. We expect RBL to scale up materially without any significant teething issues while achieving best in class performance across major parameters. RBL is transitioning from being a wholesale-focused regional player to an agile technology-leader with a diversified portfolio, focus on strategic niche customer segments, and pan-India aspirations. Retain BUY with a TP of Rs 650.

CMP Potential Upside

: Rs 477 : 36%

MARKET DATA No. of Shares Free Float Market Cap 52-week High / Low Avg. Daily vol. (6mth) Bloomberg Code Promoters Holding FII / DII

: 420 mn : 100% : Rs 200 bn : Rs 600 / Rs 443 : 1.3 mn shares : RBK IB Equity : 0% : 38% / 12%

Key highlights ♦ ♦ ♦

Credit cost guidance remains intact at 2-2.5% for FY18. GNPAs in the financial inclusion business is expected to be brought down to ~1% (5.2% in Q3FY18) after the accelerated provisions and write-offs in FY19 Loan growth is expected to remain strong at 30-35% going forward. Credit card business is expected to gain strong traction and will be a high ROA generating business Given the benefit from reduction in cost of funds and gradual change in loan mix in favour of retail, NIM is expected to be maintained ~3.9%

Maintain BUY with TP of Rs 650 (3.4x FY20E ABV; upside 36% from CMP): RBL will command a premium to peers given (1) loan growth 3-4x of industry for foreseeable future, (2) ample scope of improving its low cost deposits and fee income, (3) negligible legacy issues, and (4) value accretion from significant rise in retail assets (tie-up with Bajaj Finance/new gen/e-comm players). We value RBL at 3.4x FY20E P/ABV to arrive at TP of Rs 650. At CMP of Rs 477, RBL trades at 2.5x FY20E P/ABV.

Financial summary (Standalone) Y/E March

Key drivers

FY17

FY18E

FY19E

FY20E

(%)

4,460

6,321

8,646

11,600

YoY Loan growth

12

15

21

28

32.0

27.2

36.8

34.2

Book value (Rs)

116

157

175

199

Adj. BV (Rs)

113

151

169

193

40.1

31.5

23.1

17.2

4.2

3.2

2.8

2.5

RoE (%)

12.2

11.6

12.5

14.8

RoA (%)

1.0

1.2

1.3

1.3

Net NPA (%)

0.6

1.0

0.8

0.6

PAT (Rs mn) EPS (Rs) EPS chg (%)

PE (x) P/ABV (x)

Source: Company, Axis Capital, CMP as on 27 Mar 2018 th

Q1’18

Q2’18

Q3’18

40

35

38

3.5

3.7

3.9

51.0

54.2

54.0

1.5

1.4

1.6

NIM Cost-Income ratio GNPA ratio

Price performance 140

BANKEX

RBL Bank

120 100

80 Apr-17

Jul-17

Oct-17

Jan-18

01

04 APR 2018

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