RBL Bank (RBK IN) - Robust growth continues; improving cost efficiency - CSEC Research

Robust growth continues; improving cost efficiency

- RBL's advances registered a robust growth of 39% YoY to INR 294.5bn in 4QFY17. Growth in the advances was primarily led by BBB segment (55% YoY), C&IB segment (51% YoY) and DB&FI segment (32% YoY). Sequentially, we witnessed a cyclical pick up in the Agri segment (21% QoQ). Consequently, the mix of wholesale and Retail stands at 60.6% & 39.4% respectively.

- Deposits grew by 42% YoY to INR 346bn supported by increase in CASA base. CASA deposits grew strongly by 67%YoY taking CASA ratio to 21.98% from 18.64% in 4QFY16. Savings account remained the highlight with a growth of 118.9% YoY. However, sequentially, CASA ratio dropped by 117bps from 23.15% in 3QFY17.

- Net Interest Income grew by 47% YoY at INR 3.5bn led by growth in advances and margin expansion. Reported NIM improved by 30bps YoY to 3.5% primarily led by decrease in cost of deposits by 70bps to stand at 6.8% in 4QFY17. Yield on advances too dropped by 70bps YoY to 10.80% largely contributed by drop in yields on wholesale-book. Management highlighted that yields on retail books continues to remain healthy at 13.38% for FY17.

Valuation: 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 rate the stock an OUTPERFORMER and upgrade the target price to INR 640 (Prev. Target of INR 450), implying a FY19E P/BV of 4.4X. Risks: Asset quality deterioration as the share of relatively riskier segment increases, slower than expected CASA mobilization, exit of any Key Managerial Personnel.

Source : Equity Bulls

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