RBL’s corporate lending is no basket case, Upgrade to Buy We have revised our NII estimates by -0.3%/-0.4%, PPOP estimates by -0.4%/-0.6% and PAT estimates by -0.6%/-5.7% for FY20/FY21, respectively. We upgrade RBL to Buy rating, revising our target price to Rs463 (from Rs559 earlier) and valuing the stock at 1.9x FY21E P/BV.
Outlook & Valuation: RBL Bank’s fresh set of stressed pool would push back of 1.5% to Q2FY2021. We expect RBL Bank to grow its advances at CAGR of 33% over FY2019-21E. Improvement in CASA, higher share of retail book and inhouse priority sector lending will support NIM going forward. At CMP, RBL trades at 2.3x FY21E P/ABV. We maintain our Buy rating with Target Price of `650 (3x FY21EABV).
Valuation view: RBL has demonstrated strong momentum in business growth and earnings. However the exposure to a few stressed corporate accounts is likely to drive an increase in provisioning expenses and dent the earnings trajectory. We, thus, cut our PAT estimates by 12%/9% for FY20/21 as we factor in higher credit cost of 160bp/140bp for FY20/21 (~100bp in FY19) though robust margins and improving profitability in the cards business will still facilitate 30% earnings CAGR over FY19-21. We revise our TP to INR640 (2.5x FY21E BV). Maintain Buy.
We have revised our NII estimates by -0.6%/-1.0%, PPOP estimates by 0.9%/- 10.3% and PAT estimates by -12.7%/-1.9% for FY20/FY21, respectively. We have retained Accumulate rating on RBL, revising our target price to Rs559 (from Rs696 earlier) and valuing the stock at 2.2x FY21E P/BV.