MOSL: RBL Bank (Buy)-Credit cards & MFI - The twin earning boosters
RBL Bank: Credit cards & MFI - The twin earning boosters
(RBK IN, Mkt Cap USD3.6b, CMP INR595, TP INR700, 18% Upside, Buy)
RBL Bank has delivered 45% CAGR in net profit over FY15-18 led by robust balance sheet growth and stable asset quality, despite events like demonetization and rollout of GST. RoA has thus improved from 0.9% to 1.1% over a similar period, while RoE has improved to 11.6% for FY18. We estimate earnings to grow at 44% CAGR over FY18-21E and thus project RoA to improve to ~1.5% by FY21E. RBL has demonstrated a strong progress in building its credit card portfolio and in this note, we have analyzed the impact of the credit card/MFI business on RBL’s profitability over the next 2-3 years, particularly as the growth momentum remains strong and the share of these segments increase to ~25% of the total book by FY21E. Our base case analysis suggests that credit card/MFI business will likely account for 33% of total PAT by FY21E (vs 21% currently as per our calculation) even as we have built in RoA of 3.4%/3.6% for credit card/MFI business, which we believe is on the conservative side. We build in capital raise of INR25b during FY20E and thus revise our PT to INR700 (2.8x Sep20E ABV). Maintain Buy.
Credit card segment highly underpenetrated; enormous scope of growth
- The credit card market in India is highly underpenetrated (2.3% of population as at FY17) in comparison to other countries like USA (300%), Korea (180%) and Brazil (70%). Moreover, credit card spends of USA, Korea and Brazil is significantly higher than India at 60x, 10x, and 4x, respectively. The increasing focus on digitalization, shift towards a cashless economy and increasing awareness is expected to drive and strengthen growth in the credit card segment over the medium term.
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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