This Small Cap Banking Stock Grew 24.62% In 3 Months, Buy For Robust 68% Gains: Ventura Securities

Ventura Securities has placed a buy call on RBL Bank for robust 68% gains with a target price of Rs 256.2 per share. The time period for the potential upside given by the brokerage is 24 months. RBL bank is a small-cap private sector bank having a market cap of Rs 9,163.59 crore.

RBL Bank is one of India's leading private-sector banks. The bank provides a wide range of banking and financial services including wholesale banking, retail banking, treasury operations and other banking-related activities.

Stock Outlook & Returns

The last trade share price of RBL Bank on the NSE is Rs 152.85 per share, 1.56% up from its previous close of Rs 150.50 per share. The stock in a week jumped 7.83%. It jumped 11.16% in 1 month and in the past 3 months, it has given 24.62%, respectively. 

It has given negative returns on the term. The stock fell by 15.88% in 1 year, 59.15% in 3 years and 70.67% in 5 years, respectively.

The stock recorded its 52 week high level at Rs 205.40 per share on 13 December 2021, and its recorded 52 week low level is Rs 74.15 on 20 June 2022, respectively. The ROE is negative 1.32%, which is below its peer stocks. 

Buy stock for Rs 256.2 target price

Burgeoning asset quality issues from the fallout of concentrated bets on select corporate portfolios took a toll on RBL Bank's profitability in FY22. As if these were not enough, ensuing friction with the RBI on the issue of management leadership and street perception on the ballooning losses on the credit card business led to a sharp de-rating of the stock. "In our opinion, the pessimism on the stock is overdone and the current valuations more than capture all the negatives," the brokerage said.

Corrective action with the appointment of a new CEO, Mr R. Subramaniakumar, more than adequate provisioning on the NPLs, early positive traction on the new business plan and the possible recall of the RBI nominated director is indicative of an early path to recovery. In our opinion, the current valuations provide for an attractive entry point for investing in the stock with a good risk-return profile over the next 2 years.

"We initiate coverage on RBL with a BUY for a price target of INR 256.2 (~1.0x FY25 P/B) which represents a potential upside of 70.8% from the CMP over the next 24 months. Our model builds in a conservative outlook with a robust NPL recovery," the brokerage said.

The brokerage expects

Advances and NII to grow at a CAGR of 12.0% & 14.2% to INR 86,889.6 cr & INR 6,391.7 cr, respectively, over FY22-25 supported by branch expansion (80-100 branches every year). Other income is expected to grow at 8.6% CAGR over FY22-25 as new credit card issuances should help drive fee income. "We have modelled ~70bps expansion in NIM's as the bank increases share of retail pie in the overall lending," the brokerage said. 

PPoP is expected to grow at 6.7% CAGR to INR 3,220.3 cr over FY22-25. "RBL Bank is now expected to slow down provisioning given that majority of the stress on the wholesale book is already out and hence we do not expect any big surprises. Net earnings are expected to turn positive going forward (FY25 PAT expected at INR 1,083.9 cr) unlike loss of INR 166.2 cr reported in FY22," the brokerage said. 

Return ratios namely RoAA and RoAE are expected to grow by ~98bps & ~864bps over FY22-25 to 0.8% and 7.3%, respectively. "We expect cost to income to stay above >60% over the forecast period," the brokerage said.

According to the brokerage, "Disruption by fintech players and incremental stress on new loan book remain key risks to our investment thesis."

Disclaimer

The stock has been picked from the brokerage report of Ventura Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.