RBL Bank shares tank 8% despite 170% surge in Q2 profit; here's why | Targets

RBL Bank Ltd shares fell 8 per cent in Tuesday’s trade despite a 170 per cent year-on-year (YoY) jump in Q2 net profit, as analysts cited stretched valuations following a sharp rally over the past year and likely near-term pressure on net interest margin (NIM).

Calling RBL Bank's Q2 results as 'nothing special', CLSA said FCNR deposit accretion of $3.4 billion was strong, but average CASA growth of 5 per cent YoY was muted. The global investment bank said the cost of deposits for RBL Bank declined 15 basis points, which is good but still remains higher than that of other banks.

"While we acknowledge that the 'worst' on NIM and asset quality may be behind, we highlight that the medium-term ROE of the bank (8-9 per cent) and its inherent cyclicality do not justify the 1.4x PB multiple that it gets. We trim FY27-29 PAT by 1-5 per cent on lower NII and maintain our target price of Rs310. Maintain U-PF," CLSA said.

RBL Bank shares fell 7.65 per cent to hit a low of Rs 387.85 apiece, trimming its one-year return to 35.64 per cent.

Nirmal Bang Institutional Equities said NIM is expected to moderate in Q3 as the full-quarter impact of FCNR-related leverage flows through, before potentially recovering from Q4FY27 as the repo rate hike is transmitted and surplus liquidity is progressively deployed.  "Following the sharp stock rally over the past 3-4 months, we maintain HOLD and raise our target price to Rs 445 from Rs 386, valuing the bank at 1.4 times estimated September 2028 book value," it said.

Dolat Capital, which has a 'Sell' rating on the stock, said RBL Bank reported a marginal PAT beat, driven by higher-than-expected NIMs and lower operating expenses, partly offset by higher credit costs.

It said post the capital raise, return on asset (ROA) expansion will be limited, and return on equity (ROE) will remain subdued.  "We believe current valuations at 1.4 times FY28E P/B are adequately factoring normalized leverage levels but don’t reflect the pressure on yields/margins from declining unsecured mix.  We maintain our ‘SELL’ rating a target of Rs 340, implying 1.1 times FY28E P/B," it said.

Morgan Stanley's Subramanian Iyer has an 'Equal Weight' rating on RBL Bank, with a target price of Rs 370. Investec's Parameswaran Subramanian cut his rating on the banking stock to 'Hold' from 'Buy', while maintaining a target price at Rs 440. ICICI Securities' Jai Prakash Mundhra also cut his rating to 'Add' from 'Buy', but raised his target price to Rs 460 from Rs 430 earlier. Similarly, Axis Securities' Jayant Kharote cut his rating on RBL Bank to 'Reduce' from 'Add', while retaining his target price at Rs 400.

Goldman Sachs' Sumit Kariwala has a 'Sell' rating on the stock, while CLSA's Piran Engineer has a 'Reduce' rating. Both have a target price of Rs 310, the lowest on the Street so far.

Citi's Kunal Shah has a 'Buy' rating on the stock, with a target price of Rs 505, the highest following the Q2 earnings so far.

MOFSL said RBL Bank reported a healthy quarter, with in-line NII partly offset by higher-than-expected provisioning, driving a marginal earnings miss. NIM improved 48 basis points quarter-on-quarter (QoQ) to 4.61 per cent, with the full-quarter impact of capital infusion by Emirates NBD.

It said NIM may, however, moderate in the 3QFY27 before improving in 4Q on the back of gradual deployment of surplus liquidity and rate hike.

"Credit growth was strong, with the bank expected to continue its 22-25 per cent growth momentum, led by wholesale banking and moderate growth in unsecured book. On asset quality, slippages are expected to moderate after 1HFY27, with a reduction in slippages in credit card book and higher secured asset mix, which shall gradually support a reduction in credit costs," the domestic brokerage said.