Shares of RBL Bank Ltd cracked 14.58 per cent in Monday's trade to hit a one-year low value of Rs 175.50. Today's sharp fall in the share price came after the lender posted a 24.33 per cent year-on-year (YoY) drop in its profit after tax (PAT) for the quarter ended on September 30, 2024 (Q2 FY25). During the quarter under review, PAT came at Rs 222.52 crore as against Rs 294.08 crore in the year-ago period.
The bank's net interest income (NII), however, grew 9 per cent YoY to Rs 1,615 crore in Q2 FY25 and its net interest margins (NIMs) came at 5.04 per cent. The lender also reported a 24 per cent YoY growth in its operating profit, at Rs 910 crore, for the September 2024 quarter.
Centrum Broking has assigned a 'Buy' call on RBL Bank with a target price of Rs 291, indicating a potential upside of 65.81 per cent from today's low level. "RBL Bank faced challenges this quarter as asset quality issues impacted key profitability segments. As a result, we are revising our credit growth estimates to a 16 per cent CAGR for FY24-27, lower than the bank’s guidance of over 18 per cent. We are also adjusting our projected RoA to an average of 1.1 per cent for FY26/27, below management's target of +1.3 per cent. In light of delays in achieving the expected return profile and the broader sector's valuation pressures, we are lowering our target P/ABV multiple from 1.25x to 1.0x," the domestic brokerage stated.
Despite RBL's stock declining, Centrum believes concerns around growth, asset quality, and profitability are largely priced in. "While both internal and external challenges have caused disruptions, the management’s long-term strategy for achieving diversified and sustainable growth is gradually materializing. Looking ahead, we expect a steady improvement toward a 1.1% RoA, aided by a possible interest rate-cut cycle and recovery in the MFI and credit card segments. With the stock trading at an attractive 1HFY27E P/ABV multiple of 0.7x, we view it as an attractive 'Buy' opportunity," it said.
"We have revised our estimates to account for progress so far and the impact of strategic initiatives, resulting in earnings adjustments of -18% and -18% for FY25E and FY26E, respectively," Centrum added.
"On the liability front, total deposits grew by +20.3 per cent/+6.5 per cent YoY/QoQ; granular RDs maintained the growth +32 per cent/4 per cent YoY/QoQ respectively. RBL's CASA ratio also witnessed a rise of 100bps to 33.6 per cent from 32.6 per cent as of Q1 FY25. This rise was primarily due to steps taken from bank to strengthen liability franchise," the brokerage also said.
The LDR/LCR ratio remains at comfortable levels of 81 per cent/129 per cent, Centrum mentioned. It further said that margins were impacted due to interest income reversal, driven by higher GNPA in the MFI and CC portfolios, with Rs 120 crore reversed this quarter.