Why does RBL Bank look attractive to investors?

RBL Bank

In stock markets, money chases growth.

However, profitless growth is worthless.

It’s noteworthy that not only growth that matters, but the quality of growth matters too.

Any sector or a company that grows at a brisk pace consistently (by taking only calculated risks)  and translates that in a higher bottom line becomes investors’ darling.

No wonder, select private sector banks have a big fan-following on Dalal Street.

If you are looking for a bank that’s expected to grow by leaps and bounds, RBL Bank is a place to be.

Why does RBL Bank look attractive at this juncture?

RBL Bank, despite being a small private sector bank, has been making its presence felt— thanks to its foresightedness and aggressive business expansion.

It’s relying on technological disruptions to stay at the forefront of competition posed by traditional banks.

Expected growth in the loan book of RBL Bank

 RBL Bank(Source: Ventura Securities)

We expect the loan book of RBL Bank to grow at 32% compounded annualised rate and scale to Rs 1,20,584 crore by FY 2021-22. This growth is expected to be spearheaded by the high ROA (Return-on-Asset) potential credit card lending and the micro-finance book.

Is RBL Bank taking excessive risks?

While both these segments are fraught with risk, RBL Bank is relying extensively on data analytics and multi-pronged stratification to mitigate the same. Both these portfolios have a negative correlation. Hence, in our view, the impact on asset quality is likely to reduce.

In the traditional banking verticals viz. corporate and retail banking the product profile continues to follow risk- averse prudent lending norms with respect to the corporate rating and collateralised offerings for the retail segment.

We believe the Net Interest Income (NIM) will grow at 30% compounded annualised rate.

At Rs 607 (closing price as on March 05, 2019), the stock is available at the Price-adjusted book value multiple of 2.8X and thus looks attractive.

What does the technical analysis of RBL Bank say?

On weekly charts, RBL Bank has closed above important moving averages of 10-week, 30-week and 60-week. Moreover, Moving Average Convergence and Divergence (MACD) and Relative Strength Index (RSI) also hint at the bullishness of investors.

RBL Bank: Technical Scan

 RBL Bank

(Source: Ventura Securities)

In a nutshell

At a time when, the market is jittery, staying with high-growth stocks such as RBL Bank might help you provide essential props to your portfolio.

PS: we recently released a report on RBL Bank reaffirming our view. You can access the full report here!

PS: PS: To know more about technical indicators, read some of our older posts

MACD Generates entry and exit signals for stock traders (we had discussed RBL Bank in this post as well)

Identify overbought and oversold stocks with RSI

Please share your suggestions/comments with us on blogcontent@ventura1.com

 

 

Disclaimer:

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company.

We do not individually or collectively hold 1% or more of the securities of the company.

We do not have any other material conflict of interest in the company.

We do not act as a market maker in securities of the company.

We do not have any directorships or other material relationships with the company.

We do not have any personal interests in the securities of the company.

We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships.

We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.

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