23 Aug , 2022 By : Kanchan Joshi
RBL Bank is expected to adopt a more calibrated-growth approach in FY23 and beyond, unlike in the past, highlighted brokerage Emkay in a note after meeting RBL Bank’s new MD and CEO, Subramaniakumar, to understand his initial thoughts on the bank’s transformation and sustainability plan.
“The bank expects around 15% ( /-10%) growth in FY23 on a low base, but estimates sustainable growth of 20-25% thereafter. The focus, hereon, will be on delivering diversified & granular growth with higher share of secured assets. That said, the bank remains determined to re-accelerate growth in the cards business, while MFI book deceleration is largely behind," the note stated.
Emkay believes the current dismal valuations (0.4x FY24 ABV) largely ignore the new management’s strategy (which is appropriate in our view) that focuses on sustainable growth/returns now and be more regulatory-compliant v/s the previous high-risk/high-return strategy that partly led to regulatory intervention.
The brokerage house said it also takes comfort from bank’s higher capital level (Tier I -16%). Thus, it has recommended a Buy rating on RBL Bank shares with a 12-month target price of ?125, for investors who are ready to see through the near-term transitional pain for reaping gains in the long term. The bank stock is down over 22% in 2022 (YTD) so far and currently trades around ?100 level on the BSE.
“To de-risk the card portfolio being highly dependent on BAF (76% of CIF), the bank is entering into multiple co-branding/sourcing partnerships. On the secured retail front, focus will be more on mortgages/vehicle loans, while the bank would also build a healthy SME portfolio to improve the asset-portfolio tenure and support CASA mobilization," it added.
Emkay believes some intermittent assetquality hiccups cannot be completely ruled out, particularly when the external environment is fragile and internal stress recognition standards are being strengthened. Migration to secured retail assets & enhanced risk monitoring should help the bank avoid future asset-quality shocks as well. However, key risks, as per Emkay, are high level of management attrition disrupting the growth/asset-quality improvement story, and break-up of card tie-up with BAF.
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