RBL Bank shares trade at lower valuations. Can this stock gain post Q4 results?

RBL Bank's March quarter profit at Rs 271 crore (up 36.8 per cent YoY) was its highest ever, thanks to higher core income, other income, and lower provisions. The net interest income (NII) for the bank, rose 7 per cent YoY to Rs 1,211 crore, with the  net interest margin for the quarter coming in at 5.01 per cent. Analysts are mixed on the stock's prospects. While a few analysts noted that the stock traded at lower valuations and that the asset quality weakness is behind, they see profitability to remain under pressure in the near-to-medium term. For now, price targets of a few brokerages suggest 20-39 per cent potential upside for the stock.

Emkay Global said the stock is currently trading at lower valuations of 0.7 times FY24E adjusted book value (ABV) and 0.6 times FY25E ABV, largely ignoring the broader recovery and growth potential under the new management. It has retained a 'Buy' on the stock with a target of Rs 225 per share, based on 0.9 times FY25E ABV.

"The bank believes that the MFI stress-flow is largely behind, while card portfolio stress remains within acceptable levels. Lumpy wholesale stress, too, is largely behind, and the bank would look for some resolutions in the medium term. Factoring-in the better growth trajectory, margin/fee delivery and lower LLP, we expect the bank's RoA/RoE to improve to 1.3 per cent/13 per cent from 0.8 per cent/7 per cent, without factoring any capital dilution, which we believe the bank may require to achieve the guided growth trajectory," Emkay said.

Motilal Oswal said RBL Bank's beat in 4QFY23 earnings was driven by lower provisions and said operating performance was in line with estimates. This brokerage, however, has marginally cut earnings estimates to factor in higher opex and elevated credit costs (guidance of 1.5 per cent vs 29 bps for 4Q23), which will limit the expansion in RoA.

The brokerage has downgraded its rating on the stock to 'Neutral' with a target price of Rs 185.

RBL Bank is showing signs of recovery, said LKP Securities. However the negatives include de-growth in pre-provision operating profit because of higher operating expenses, led by cards expenses followed by branches and technology. LKP Securities said the bank’s latest business growth strategy around ramping up cards acquisition will entail significant operating expenses, which is expected to keep profitability under pressure in the near-to-medium term. This brokerage has a 'Buy ' rating for the stock with a target of Rs 194.

"The management achieved its previous guidance to exit FY23 with ROA of 1 per cent. Furthermore, the management alluded to FY26 goals to grow business at a CAGR of 20 per cent and expects PPOP growth to be higher than loan growth.

 

 

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