With 70% gains since listing, HDFC Sec sees 14% upside in this 75-year-old bank

HDFC Securities has cited factors such as strategic clarity, tight execution, superlative growth off a low base as being key to making RBL Bank attractive for long term investors.

After having gained over 70 percent since its listing in 2016, RBL Bank is on the radar of HDFC Securities. The broking firm has initiated coverage on the stock with a target of Rs 573 per share, an upside of 14 percent to its Monday's close of Rs 502 per share.

The brokerage has cited factors such as strategic clarity, tight execution, and superlative growth off a low base as being key to making the stock attractive for long-term investors.

“It is sticking to a narrow (and carefully chosen) range of products, even as it explores new credit segments via pilot initiatives. Meanwhile, cross-selling (credit cards and PL) within the current business mix provides opportunities,” the brokerage house said in a report.

The research firm is also anticipating visibility of strong growth ahead as the bank’s management is confident of growing the loan book at 30-35 percent CAGR. “With increasing retail/SME tilt, a calibrated risk appetite on corporate loans, deep relationships and an expanding client base, this looks feasible to us. We have factored 33 percent loan CAGR over FY18-20e”

In fact, it said that the asset quality of the bank is impeccable. The aversion for project finance, greenfield risks and a consequent focus on shorter tenure loans has helped the bank keep asset quality under control (GNPA 1.6%) in a relatively stressed credit environment.

“Impaired assets at 1.15% (Q3 FY18) compare well with peers (Yes Bank at 3.24%, and Federal Bank at 3.04%). We have factored in 1.45% slippages and LLP of 67bps over FY18-20e,” the brokerage said.

While expanding fee streams and the ability to tweak savings account rates are key profit levers, the brokerage said its high (and well directed) spend on people and technology will limit operating leverage for now.

At the close of market hours on April 23, RBL Bank was quoting Rs 502.40 per share, down Rs 3.65, or 0.72 percent, on the BSE. It touched an intraday high of Rs 510.00 and an intraday low of Rs 501.00.

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