RBL bank update: CLSA gives a buy rating
Last updated: 05 Jan, 2021 | 12:59 pm
Global research firm CLSA has initiated coverage on RBL Bank with a buy rating and a target price of ₹330, implying a 37% return.
- Transformation 2.0: The bank’s first transformation came with a 40x balance sheet growth over FY10-20 and consistently improving ROA’s (Return on Assets). The IL&FS fiasco caused asset quality issues due to the bank’s large exposure, the bank also faced trouble with exposure to corporate groups like Coffee Day Enterprises. With consolidation in the corporate books, the bank is now focusing on the retail side. The following chart shows how the retail segment has been gaining share in the recent past.
- Profitable segments: The bank has gained scale in the Cards and MFI (microfinance) segments. Share of these two segments increased from 10% of total loans in FY17 to 30% in FY20. CLSA expects it to increase to 38% bY FY23.
- Reasonable valuation: CLSA expects RBL bank to achieve 13% Return on Equity by 2022-23, as credit costs normalise with the easing of COVID-19 pandemic. At a price to book of 1x (based on Sep 22 book value), the stock seems to be attractively priced.
CLSA believes that the credit-cards and microfinance businesses of RBL which have been built and scaled in the past three to four years through tie-ups will drive the bulk of profitability going forward. CLSA said that the consolidation of corporate book growth is providing the bank with an opportunity to work on its liability franchise, and delivery on liabilities will be key to further rerating.