This Banking Stock Has 33% Upside, Buy Now Says Edelweiss Broking

Key investment rationale for RBL Bank according to the brokerage

• RBL Bank's Q3FY22 results are broadly better than our estimates; however, aggressive customer acquisition in the credit card segment led to substantial growth in operating expenses.
• Net revenue grew 10% YoY and 8% QoQ, aided by higher NII income and healthy traction in non-interest income. The bank reported 11bps YoY and 20bps QoQ expansion in net interest margin (NIM).
• Operating expenses shot up because of (a) strengthening branch network and workforce and (b) very aggressive customer acquisition in the credit card business. Operating expenses grew 46% YoY and 22% QoQ; hence, PPoP came in at INR631cr, declining 22% YoY and 9% QoQ.
• Credit cost came in at 2.9% lower than our estimate of 3.7%. Consequently, net profit stood at INR156cr (vs our estimate of INR89cr), registering 6% YoY and 407% QoQ growth.
• Advances grew 3% YoY and 4% QoQ to INR58,141cr, largely driven by corporate and agricultural loans; however, retail and MSME loans declined. Deposits increased 10% YoY but sequentially declined 3%. Current Account Saving Account (CASA) grew 21% YoY, translating into a 338bps YoY jump in the CASA ratio to 34.4%.
• Moderation in slippages continued with stable recoveries, upgrades and write-off, resulting in 56bps and 29bps improvement in gross non-performing assets (GNPA) and net non-performing assets (NNPA) to 4.84% and 1.85%, respectively. The net restructured book stood at 3%, down 35bps sequentially, on account of recovery.
• The bank reported a return on assets (RoA) of 0.61% against 0.12% in the previous quarter but remained unchanged on annualised basis. We expect the return ratios to improve, led by moderating credit cost and stable NIM with credit growth in the mid-teens.

Buy With A Target Price of Rs 203

Edelweiss has said in a report that "RBL reported an improved set of numbers-driven by margin expansion, healthy fee income and moderation in credit cost; however, opex was higher due to business-related expenses. The biggest concern were deposits, which are now improving. We believe return ratios will improve, led by (a) moderating credit cost, (b) healthy fee income and stable margin which will drive net revenue and (c) credit growth which is expected to remain in the mid-teens. Thus, we reiterate our BUY recommendation with a target price of INR203/share, implying a 33% upside."

Disclaimer

The stock has been picked from the brokerage report of Edelweiss Broking Ltd. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.