MOSL: RBL BANK (Buy)-Business growth moderates; balance sheet cleansing continues
(RBK IN, Mkt Cap USD2.3b, CMP INR339, TP INR415, 22% Upside, Buy)
Elevated credit cost to keep near-term earnings under pressure
** RBK reported moderation in business growth, led by muted wholesale book; deposit growth stood flat sequentially. Slippages remained higher while elevated credit cost impacted earnings. Though operating performance remained strong (fees, NIMs and PPoP), elevated slippages' trajectory and higher credit cost is likely to impact earnings in the near term.
** We cut our EPS estimates for FY20/FY21 by 17%/13%, primarily due to lower business growth and increase in our credit cost estimates given the higher slippages and decline in PCR ratio. Maintain Buy.
Asset quality deteriorates; PPoP growth remains strong
** 3QFY20 PAT stood at INR700m (-69% YoY; MOSLE: INR459m), affected by higher provisions as RBL provided INR3.4b toward stressed accounts. NII grew 41% YoY to INR9.2b on 22bp QoQ expansion in margin to 4.6%. Core fee income grew 37% YoY, led by credit card fees, which constituted ~57% of total fees. PPoP growth, thus, remained strong at 47% YoY to INR7.3b.
** Loan growth moderated to 20% YoY, led by slowdown in the wholesale book, which grew 3% YoY (-4% QoQ) while strong growth in the retail book continued (+49% YoY). The share of retail book increased ~300bp QoQ to ~51%. Deposit base increased 21% YoY, led by robust 58% YoY increase in SA deposits. CASA ratio increased to 26.8% (+30bp QoQ).
** GNPL/NNPL increased 31%/36% QoQ to INR20.1b/INR12.4b, led by elevated slippages of INR10.5b. Slippages from the disclosed stressed pool came in at INR7.1b. GNPA/NNPA ratio, thus, increased 73bp/51bp QoQ while PCR declined ~220bp QoQ to 38.5% (58.1% including tech w/o).
** Other highlights: (i) Cards portfolio grew to 2.5m, while credit card book grew 109% YoY to INR93.9b (15.7% of total loans).
RBL Bank Limited is a banking company. The Bank is engaged in providing a range of banking and financial services, including commercial banking, retail banking, agriculture finance and financial inclusion, treasury operations and other banking related activities. The Bank's segments include Corporate/Wholesale Banking, which includes lending, deposits and other banking services provided to corporate customers of the Bank; Retail Banking, which includes lending, deposits and other banking services provided to retail customers of the Bank through branch network or other approved delivery channels; Treasury, which includes investments, all financial markets activities undertaken on behalf of the Bank's customers, trading, maintenance of reserve requirements and resource mobilization from other Banks and financial Institutions, and Other Banking Operations segment, which includes para banking activities, such as Bancassurance and credit cards.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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