RBL Bank (RBK IN) - Strong growth in advances; stable asset quality - Earnings update - CSEC Research

- RBL's advances grew by 35% YoY and 7.9% QoQ to INR 335 bn in 2QFY18. This growth came predominantly from BBB segment (59% YoY) & CB segment (32% YoY).The wholesale & retail mix stood at 60% and 40 % respectively. Based on their internal ratings, ~92.5% of the advances are offered to BBB- or higher rated borrowers. The management expects loan book to grow at 35% CAGR over the next 3 years.

- Deposits grew by 30.8% YoY to INR 365bn supported by increase in CASA base. CASA deposits grew strongly by 56%YoY taking CASA ratio to 23.7% from 19.89% in 2QFY17. Savings account remained the highlight with a growth of 138.5% YoY. Going forward, the company expects a growth of 0.75-1% every year, till FY20 in CASA ratio.

- Net Interest Income grew by 38.7% YoY at INR 4.2bn led by growth in advances and margin expansion. Reported NIM improved by 33bps YoY to 3.74% primarily led by trimming of investment book and increasing the share of advances. Drop in cost of funds by 70bps also contributed to the margin expansion. However, Yield on advances dropped by 76bps YoY to 10.60% largely on account of interest reversals in MFI portfolio.

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 maintain the buy rating on the stock, revising the target price at INR 661, implying a FY19E P/BV of 4.1X.

Risks: Asset quality deterioration as the share of relatively riskier segment increases, slower than expected CASA mobilization, exit of any Key Managerial Personnel.

Shares of RBL Bank Ltd was last trading in BSE at Rs.521 as compared to the previous close of Rs. 530.75. The total number of shares traded during the day was 94577 in over 1963 trades.

The stock hit an intraday high of Rs. 536 and intraday low of 520.1. The net turnover during the day was Rs. 50127867.

Source : Equity Bulls

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