CLSA has initiated coverage on RBL Bank with a 'BUY' rating and Rs. 330 target price

Synopsis: Building scale in profitable segments; initiate with BUY

RBL Bank is a mid-sized private bank undergoing its second big transformation, this time from bulky corporate banking exposures to focusing on key retail-asset niches. The credit-cards and microfinance (MFI) businesses have been built in the past three to four years and gained scaled through tie-ups, and will drive the bulk of profitability going forward. The consolidation of corporate book growth is providing the bank an opportunity to work on its liability franchise, and delivery on liabilities will be key to further rerating. We initiate coverage on RBL Bank with a BUY rating and Rs330 target price, which implies 38% upside.

The current management led the bank's first transformation with 40x balance sheet growth over FY10-20 and ROAs improving from <0.5% in FY10 to +1% in FY17-19. RBL acquired RBS India's cards business in FY14 and formed a partnership with Bajaj Finance in FY17, making it the fifth largest credit-card issuer now. For MFI, through partnerships with business correspondents (BCs) and acquiring its largest MFI BC, RBL has built a ~Rs70bn MFI portfolio. The asset side consolidation provides RBL the much-needed opportunity to build its retail deposit franchise, and lowering its cost of funds will be key to sustained rerating.

We expect RBL to deliver 13% ROE by FY23CL as credit costs normalise post Covid, with the ability to leverage up further (~15% Tier-1 in FY23CL). Valuations at 1.0x Sep22 book appear undemanding and hence we initiate with a BUY rating.

Shares of RBL Bank Ltd was last trading in BSE at Rs.250.7 as compared to the previous close of Rs. 239.6. The total number of shares traded during the day was 2649972 in over 22986 trades.

The stock hit an intraday high of Rs. 251.8 and intraday low of 236.35. The net turnover during the day was Rs. 649988064.

Source : Equity Bulls

Keywords