One of the fastest growing small-sized banks, RBL Bank has continued to project consistent performance for the June quarter (Q1) of 2018–19. It has reported good results with robust business growth and a stable non-performing assets (NPAs).
In two years of its inception, RBL’s business has grown 31per cent year-on-year (YoY) and NPAs at 1.40 per cent, as of June 30, 2018. Its net interest income grew 46.1 per cent YoY backed by advances growth of 35.7 per cent and net interest margin expanded by 50 basis point (bps) YoY and six bps on Quarter-on-Quarter (QoQ) basis to 4.04 per cent for Q1. This was revealed in a research report released by Centrum Wealth. The RBL Bank IPO hit the bourses in August 2016 to mobilise Rs1,214 crore. The bank offered its shares in the multiple of 65 and in the price band of Rs224-225 per share. Its shares were listed at 22 per cent premium at Rs274 on August 31, 2016. The share has returned more than 100 per cent to its IPO investors in 24 months.
Further, the Centrum update says, RBL Bank’s healthy business growth is expected to continue. The business grew by 31 per cent to `87,148 crore at the end of Q1 with advances and deposits growing 35.7 per cent and 26.9 per cent, respectively. The non-wholesale book (41 per cent of total advances) increased 43 per cent YoY and the wholesale book recorded a growth of 31per cent. On the liability side, the overall deposit growth of 27per cent to Rs44,950 crore was largely led by a 40 per cent growth in CASA deposits with the CASA ratio increasing 10 bps QoQ and 230 bps YoY to 24.4 per cent.
The main reason why the brokerage is bullish on the bank’s performance is because its NPA recoveries are expected to further continue. The management has indicated that the portfolio impacted by demonetisation will be fully written off in FY19 bringing the gross NPA below one per cent. There are some risk factors listed in the report, which says the slowdown in loan growth or lower CASA deposits may affect the bank’s growth. Also, with the growing corporate book, bulky slippages could deteriorate asset quality, it said.
Considering the robust growth, improving asset quality and comfortable valuations of 2.8X its FY20E, Centrum said, we remain positive on its stocks, with a target of ` 657 in a short to med-term.
Betting On Futuristic Opportunities
By Yagnesh Kansara
The strategy designed by L&T Finance Holding (LTFHL) management has begun to bear fruits. The plan to de-focus from the businesses that are not remunerative to growth areas has worked in its favour.
LTFHL was engaged in 15-17 different business lines, since it was incorporated in 2009. However, its return on equity (RoE) took a hit. Then, its management implemented ‘vision 0.2’, about two-three years ago, following which the RoE has increased to 18.45 per cent in Quarter 1 (Q1) Financial Year (FY) 19 from 17.19 per cent in the corresponding quarter last year. A rise of 126 basis points in the RoE is impressive. The company also moved to India AS, setting the stage for sustainable growth.
It is to be noted here, since new accounting standards came into play, the trailing quarters are not comparable. However, on the like-to-like basis, the consolidated net interest income, pre-provisioning profit and net profit grew by 48.2 per cent Year-on Year (YoY), 45.5 per cent and 59.5 per cent respectively. The focused loan book grew 27 per cent YoY to Rs 85,380 crore as on June 2018. Asset quality improved considerably with the overall Gross Stage 3 (GSR) assets declining 377 bps YoY to 7.9 per cent and Net Stage 3 (NS3) assets going down 296 bps YoY to 3.2 per cent at the end of June quarter as per Centrum Wealth Research report.
L&TFHL, which tapped the capital market in July 2011, raised Rs1,245 crore through a public issue and offered shares to investors at Rs52 per share. And within seven years, the shares have grown four times And with ‘vision2.0’ strategy, the shares are expected to grow further. As per Centrum, the worst seem to be over, in terms of asset quality, with the stressed loan book being recognized and provided-for.
However, the report cautions that slippages in large corporate and housing accounts may adversely impact the company’s profitability. The slowdown in core businesses, as well as the increase in competition in key segments, may prove negative for the growth.
Going ahead, as the likely stressed assets are also recognized, the overall asset quality is set to improve, thus causing lesser negative surprises. With an expectation of improving non performing asset recoveries along with lesser additions to the stressed book, we expect the GS3 and NS3 to decline to 5.6 per cent and 1.8 per cent, respectively by FY20.
yagnesh@outlookindia.com