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This Private Sector Bank Stock Has Fallen 49% From Highs, Buy The Stock For 40% Gains
The RBL Bank is one of the growing private sectors in India with a market cap of Rs 6,097 Crore. The bank is expanding its presence across the country rapidly. The bank on 12 May 2022 closed at Rs 101.70 after falling 49%. Today, the stock opened at Rs 106.20. The stock is currently trading at Rs 111.10, gaining 9.19% returns in 1 day. Following the Q4FY22 results of the bank, the brokerage firm Motilal Oswal has put a buy call for a target price of Rs 160. for a potential 40% gains.
RBL Bank Q4FY22 Results
RBL Bank reported an in-line quarter with net earnings up 27% QoQ to Rs 1.98b (+163% YoY) supported by healthy NII as NIM expanded 70bp QoQ along with controlled provisions. Business trends were modest with the loan book growing 3% QoQ, while the deposit book rose 7% QoQ. C/I ratio remained elevated at 60% on higher business expenses. Fresh slippages dipped 19% QoQ to Rs 6.2b - largely from the Retail portfolio (Credit Cards/MFI). GNPA/NNPA ratio improved 44bp/51bp QoQ to 4.40%/1.34%, respectively. We cut our FY23E/FY24E earnings by 10%/7% as we conservatively built-in higher credit cost and opex, and await clarity on the appointment of the MD and CEO." It added, "We expect RBK to deliver an FY24E RoA/RoE of 1.2%/10.3%, respectively.
The business trends are modest; PCR soars to ~70%
According to the brokerage, "RBL Bank reported a PAT of Rs 1.98b (in line), led by healthy NII growth and controlled provisions. NII grew 25% YoY (8% beat), while core fee income declined 4% YoY. NIM, thus, expanded 70bp QoQ to 5.04% (45-50bp impact due to the recognition of interest income on restructured book). Card fees declined 12% YoY to Rs 2.9b, adversely impacted by reversals of Rs 500m. NII grew 6% YoY in FY22, while PPoP declined 6% YoY. RBK reported a loss of Rs 747m in FY22. Opex rose 37% YoY as the bank continues to invest in the business, resulting in an elevated C/I ratio at 60%. Consequently, PPoP declined 25% YoY to Rs 6.5b (in line). Loan book grew 3% QoQ, led by 5% growth in Wholesale loans, while Retail advances stood flat sequentially. Retail-to-Wholesale mix stood at 52:48. Within Retail, the MFI portfolio fell ~32% YoY, while Credit Cards grew 10% YoY. The share of Credit Cards and MFI stood at 30% of total loans. Deposits rose 7% QoQ led by 10% growth in CASA deposits. CASA ratio increased 90bp QoQ to 35.3%. Fresh slippages declined 19% QoQ to Rs 6.2b predominantly in the Retail book. GNPA/NNPA ratio improved 44bp/51bp QoQ to 4.4%/1.34%. PCR, thus, improved sharply by 750bp QoQ to ~70%. Restructured book stood at Rs 19.6b - 3.27% of loans v/s 3.44% QoQ. It carries provisions of Rs 3.8b."
Buy for a target price of Rs 160
Commenting on the valuations, the brokerage has said, "RBL Bank reported an in-line quarter with steady improvement in asset quality, healthy growth in NII and controlled provisions. However, opex remained elevated and adversely impacted operating profit growth. On the business front, loan growth stood modest, led by Wholesale book while Retail trends were moderate. Fresh slippages have subsided, enabling an improvement in asset quality."
The brokerage added, "We cut our FY23E/FY24E earnings by 10%/7% as we conservatively built-in higher credit costs and opex, and await clarity on the appointment of MD and CEO. We expect RBK to deliver an FY24E RoA/RoE of 1.2%/10.3%. We maintain our BUY rating with a TP of Rs 160 (premised on 0.7x FY24E ABV)."
Disclaimer
The stock has been picked from the brokerage report of Motilal Oswal. 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. Goodreturns.in advises users to check with certified experts before taking any investment decisions.
