RBL Bank Ltd. experienced a sharp decline in its stock price, falling 8% to Rs 387.85 apiece during Tuesday's trading session. This drop occurred despite the bank announcing a substantial 170% year-on-year increase in its second-quarter net profit. The unexpected market reaction has trimmed the stock's one-year return to 35.64%.
Market analysts largely point to concerns over the bank's valuations, which have become stretched following a strong rally over the past year. Additionally, potential near-term pressure on the bank's net interest margin (NIM) is a significant factor contributing to the cautious sentiment.
Analyst Insights and Revised Targets
Several global and domestic investment banks have weighed in on RBL Bank's Q2 performance and its stock outlook:
- CLSA described the Q2 results as 'nothing special,' despite strong FCNR deposit accretion of $3.4 billion. However, they noted muted average CASA (Current Account Savings Account) growth at 5% year-on-year. While the cost of deposits declined by 15 basis points, it remains higher than that of peer banks. CLSA highlighted that the bank's medium-term Return on Equity (ROE) of 8-9% and its inherent cyclicality do not justify its current 1.4x Price-to-Book (PB) multiple. They trimmed FY27-29 PAT estimates by 1-5% due to lower Net Interest Income (NII) and maintained a 'U-PF' rating with a target price of Rs 310.
- Nirmal Bang Institutional Equities anticipates NIM moderation in Q3, attributing it to the full-quarter impact of FCNR-related leverage. They project a potential recovery from Q4FY27 as the repo rate hike is transmitted and surplus liquidity is deployed. Following the recent stock rally, Nirmal Bang maintained a 'HOLD' rating, raising their target price to Rs 445 from Rs 386, valuing the bank at 1.4 times estimated September 2028 book value.
- Dolat Capital, holding a 'Sell' rating, noted a marginal PAT beat driven by higher-than-expected NIMs and lower operating expenses, partially offset by increased credit costs. They believe ROA expansion will be limited post-capital raise, keeping ROE subdued. Dolat Capital maintained its 'SELL' rating with a target of Rs 340, implying 1.1 times FY28E P/B.
- Morgan Stanley's Subramanian Iyer assigned an 'Equal Weight' rating with a target price of Rs 370.
- Investec's Parameswaran Subramanian downgraded his rating to 'Hold' from 'Buy', while keeping the 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.
- Axis Securities' Jayant Kharote reduced his rating on RBL Bank to 'Reduce' from 'Add', retaining his target price at Rs 400.
- Goldman Sachs' Sumit Kariwala and CLSA's Piran Engineer both have a 'Sell' and 'Reduce' rating respectively, with the lowest target price on the street at Rs 310.
- Citi's Kunal Shah stands out with a 'Buy' rating and the highest target price of Rs 505 following the Q2 earnings.
- MOFSL reported a healthy quarter for RBL Bank, with in-line NII partly offset by higher-than-expected provisioning, leading to a marginal earnings miss. They noted a 48 basis point QoQ NIM improvement to 4.61%, influenced by the full-quarter impact of capital infusion by Emirates NBD. MOFSL also expects NIM to moderate in 3QFY27 before improving in 4Q. Credit growth was strong, with the bank projected to maintain 22-25% growth, led by wholesale banking and moderate growth in the unsecured book.
Outlook on Asset Quality and Growth
MOFSL further added that asset quality slippages are expected to moderate after 1HFY27, driven by a reduction in credit card book slippages and a higher secured asset mix. This shift is anticipated to gradually support a reduction in credit costs for RBL Bank.
Despite the strong profit numbers, the divergent views among analysts highlight the ongoing debate regarding RBL Bank's valuation and its future growth trajectory in a competitive banking landscape.