RBL Bank shares soar 155% in 7 months. Can it rally further after Q3 results?

RBL Bank shares, after delivering multibagger returns, are headed for more upside of up to 33 per cent in the coming days, suggest the brokerage firms. The analysts are positive on the private sector lender after its strong performance in the December 2022 quarter. However, a few have a word of caution for the investors.

RBL Bank had reported a net profit at Rs 209 crore in December 2022 quarter, rising 34 per cent compared to the year ago period. Net interest income (NII) grew 14 per cent to Rs 1,148 crore during the given period. Also, the private lender's net NPA improved to 1.18 per cent in Q3FY23 from 1.26 per cent in Q2FY23.

RBL Bank reported a strong margin uptick, but elevated operational expenditure and NPA provisions led to a slight miss on PAT at Rs 210 crore. However, the bank has guided for 1 per cent exit RoA, as income growth outpaces opex and LLP too moderates with asset quality on the mend, said Emkay Global Services.

Credit growth improved to 15 per cent year-on-year (YoY) and 6 per cent quarter-on-quarter (QoQ), mainly led by better traction in the retail and SME book, it said. "Despite disbursements being impacted for a week in Q3 due to technical upgrade, MFI AUM grew 10 per cent QoQ and should further accelerate in the seasonally-strong fourth quarter."

GNPA ratio improved by 19 bps QoQ to 3.6 per cent due to higher recoveries and growth. Bank has indicated that the MFI stress flow from the restructured pool is largely done with, which should, thus, lead to moderate slippages, said Emkay with a buy rating and a upgraded target price of Rs 225 (from Rs 160 earlier), suggesting a 33 per cent upside.

The bank's PCR (including technical write-offs) stood at 84.7 per cent as on December 31, 2022, against 78.6 per cent in the year-ago period. The CASA deposits increased 18 per cent YoY to Rs 29,948 crore, while the CASA ratio in Q3FY23 stood at 36.6 per cent.

RBL Bank’s earnings were largely in-line with our estimates, led by NIM expansion, said Nirmal Bang Institutional Equities. The asset quality trend in 3QFY23 was positive, with the GNPA ratio declining QoQ and coming in at 8 quarters’ low, led by declining slippages, it said.

"However, we would still watch for slippages from the restructured portfolio and higher expenses." On the whole, the management has indicated that credit cost is likely to remain low going forward. Also, the management has guided exit Return on Assets (RoA) at 1 per cent for FY23," said Nirmal Bang.

"Overall, we believe that asset quality issue is now getting resolved with an improving trajectory and lower delinquencies.  RBL bank has been able to deliver an uptick in balance sheet expansion on a sequential basis and we expect it to achieve RoA and RoE of 1.1 per cent and 9.6 per cent, respectively by FY25," it added upgrading the stock to buy with a target price of Rs 204.

RBL Bank's shares have delivered a return of 155 per cent in seven months from its 52-week low of Rs 74.15 hit on June 20, 2022. The scrip hit a 52-week high of Rs 189.2 on January 6, 2022. The scrip, which rose another per cent on Monday to Rs 173.6, had settled at Rs 169.90 on Monday.

Stock price appreciation reflects the market expectations on stability and business transitioning, said ICICI Securities. Visibility on growth, NIM and asset quality normalization is improving, which will likely be partially offset by higher operational expenditure, it said.

Advance growth will likely be led by retail as RBL Bank continues to invest in franchise capability and scale up/launch secured products. Stable performance without any negative surprise posts the management change has created room for valuation catch-up, it said.

"We revise our target price to Rs165 (from Rs 125) and maintain 'hold' on the stocks," ICICI Securities added. It has cited ‘opex to assets’ declining at a faster pace than anticipated; and 2) slower growth in key segments, namely credit card and microfinance as the key risks to the lender.

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