This Midcap Bank Records Rs. 2bn PAT, Buy For Aggressive 31% Return: Emkay Global

Brokerage firm Emkay Global, in a recent report, suggests investors buying the stocks of RBL Bank. The company has reported a better-than-expected PAT of Rs. 2bn in Q1, driven by contained provisions and higher treasury income, partly offset by higher opex and margin normalization on a high base.

Stock To Buy: Target Price, Current Market Price

The Current Market Price (CMP) of RBL Bank is Rs. 95. Emkay Global has estimated a Target Price for the stock at Rs. 125. This stock has the potential to give a 31.6% return, in the upcoming 1 year. This is a mid-cap stock with a market capitalization of around Rs. 5,404 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 95
Target Price	Rs. 125
Potential 1 year return	31.60%
52 week high share price	Rs. 221.30
52 week low share price	Rs. 74.15

Credit growth was subdued at 7% YoY, mainly due to the bank's conscious growth stance and MFI disbursements coming to a halt in Q1 on regulatory changes. However, it expects growth to improve, led by the high-margin card and MFI book, as asset-quality issues are largely behind. That said, RBL should recalibrate its loan book toward secured loans, including housing and vehicle loans (new/used) to bring quality and profitable growth, the report said.

Why Should You Buy This Stock: Emkay Global

Commenting on the stock, Emkay Global said, "We have raised our FY23/FY25 earnings estimates by 1%/4%, factoring in lower LLP and expect the bank to return to profitability with a RoE of 7-11% over FY23-25E vs. a loss in FY22. We roll forward our TP to 0.5x Jun'24E ABV, leading to a revised TP of Rs125 (Rs110 earlier). We also upgrade the stock to Buy from Hold, given the decent upside."

Additionally, the firm stated, "Although fresh slippages were marginally higher than expected at 6.5bn/4.6% of loans, higher recoveries/w-offs led to a 32bps QoQ decline in the GNPA ratio to 4.1%. Specific PCR improved to 72%, which should keep incremental LLP on the stock of NPAs in check."

However, key risks are slow growth, the resurgence of NPAs in MFI due to floods in a few states, and middle management attrition.

Company profile:

RBL Bank is one of India's leading private sector banks with an expanding presence across the country. It currently services over 10.66 million customers through a network of 500 branches; 1,424 business correspondent branches (of which 274 banking outlets) and 407 ATMs spread across 28 Indian states and Union Territories. The bank's overall credit growth was sub-par at 7% YoY, mainly due to MFI disbursements coming to a halt as the bank integrated its processes with the new regulatory guidelines. Additionally, the bank has seen a meaningful improvement in the CASA ratio to 36%, while it plans to invest in franchisee network and building granular deposit base, which we believe will gain more importance in a rising interest rate scenario.

Disclaimer

The above stock was picked from the brokerage report of Emkay Global. 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.