RBL Bank shares rise 6% after Q4 updates; Why brokerage see up to 50% fall in the lender?

RBL Bank Ltd was under the spotlight during the trading session on Thursday after the company announced its business updates for the quarter ended on March 31, 2024. However, a host of brokerage firms continue to remain negative on the private lender, with some expecting up to 50 per cent decline in the stock.

RBL Bank's total deposits jumped 22 per cent year-on-year (YoY) to Rs 103,454 crore as on March 31 2024 from Rs 84,887 crore recorded in the year ago period. Retail liquidity coverage ratio (LCR) deposits grew 17 per cent YoY to Rs 43,139 crore as on three months ended in March 2024.

The bank's gross advances increased 19 per cent to Rs 85,640 crore for the March 2024 quarter from Rs 71,857 crore in the same quarter previous year. RBL Bank said that retail advances grew 29 per cent YoY while wholesale advances grew 7 per cent YoY for the given quarter.

Total CASA rose 15 per cent to Rs 36,448 crore for the March 2024 quarter compared to Rs 31,717 crore in the year ago period. CASA ratio reduced to 35.2 per cent as on 31 March 2024. Average liquidity coverage ratio (LCR) stood at 140 per cent as on March 31, 2024 against, compared to 126 per cent in the year ago period.

Overseas brokerage firm Citi has maintained its 'sell' rating on RBL Bank with a target price of Rs 257 apiece. It believes that the larger part of deposit flows would have accrued towards the end of the quarter and expects credit cost to remain elevated, mostly within the guided range of 1.6-1.7 per cent.

Net interest margins (NIMs) will moderate on a quarter-on-quarter (QoQ) basis as build-up of liquidity through the quarter will offset the scale-up of high yielding advances, said Citi. "Consequently, return on assets (RoA) print is expected to be closer to 1 per cent," it added.

Shares of RBL Bank rose 5.6 per cent during the trading session Thursday to Rs 266.55 as the lender commanded a total market capitalization more than Rs 16,000 crore. The scrip had settled at Rs 252.40 on Wednesday. It has rallied about 92 per cent from its 52-week low at Rs 138.85.

Among other brokerage firms, Morgan Stanley has maintained an 'under-weight' rating on RBL Bank with a target price of Rs 250 per share. Domestic brokerage Motilal Oswal has a neutral rating on the stock with a target price of Rs 270 apiece. Elara Capital recently gave RBL Bank an 'accumulate' rating with a target price of Rs 275.

RoE, after a rough patch in FY19-22, improved in FY23-FY24YTD due to NIM expansion and decrease in credit cost. But we expect it to moderate hereon. High CD ratio of 86% and increase in cost of funds with RBL increasing deposit rates to match deposit growth with loan growth should compress NIM by 25bps from 3QFY24 levels, said Ambit in its recent report on RBL Bank.

Opex ratio would remain high as RBL expands new products and widens distribution over the next couple of years. Credit cost would stay at the higher end of management guidance as slippages normalise in credit cards/microfinance/new products and recoveries from written-off assets decline, it said.

"With no competitive advantages on either side of the balance sheet, we expect a long journey for RBL Bank to reach the guided 14-15 per cent RoE. We expect 6-7 per cent RoE over FY25-25 and reiterate 'sell' with a target price of Rs 130," Ambit added with a preferred Federal Bank, Karur Vysya Bank and City Union Bank from the midcap and smallcap space.