RBL Bank shares crash 15% after Q2 results: What analysts are saying

RBL Bank share price: The private lender's shares plunged in intraday trading following the release of its Q2 FY25 earnings over the weekend.

In Short

• RBL Bank shares plummet 14.21% after Q2 profit slump
• Operating profit grows 24% YoY, NII rises 9% YoY
• Bank's CASA ratio improves, deposits grow by 20.3% YoY

Shares of RBL Bank declined sharply on Monday after the bank reported a sharp decline in its Q2 FY25 profit. At 1:10 pm, shares of the bank were down 14.21% to Rs 176.25 on the Bombay Stock Exchange (BSE). Earlier in the trading session, it hit a 52-week low of Rs 175.50.

The private lender posted a 24.33% year-on-year (YoY) drop in profit after tax (PAT), which came in at Rs 222.52 crore for the quarter ended September 30, 2024, compared to Rs 294.08 crore during the same period last year.

Despite the significant decline in profit, RBL Bank reported some positive metrics. Its net interest income (NII) rose by 9% YoY to Rs 1,615 crore, while net interest margins (NIMs) stood at 5.04%. Additionally, the bank’s operating profit saw a 24% YoY growth, reaching Rs 910 crore for the quarter.

ANALYSTS ON RBL Q2 RESULTS

It may be noted that Centrum Broking has maintained a ‘Buy’ rating on RBL Bank with a target price of Rs 291, suggesting a potential upside of 65.81% from its current low. The brokerage acknowledged that the bank faced challenges during the quarter, particularly with asset quality issues affecting key profitability areas.

However, Centrum adjusted its credit growth estimate to a 16% compound annual growth rate (CAGR) for FY24-27, which is lower than the bank's projection of 18%.

Centrum also revised its return on assets (RoA) forecast to an average of 1.1% for FY26 and FY27, falling short of RBL's management target of over 1.3%.

In light of these adjustments, Centrum has lowered its target price-to-adjusted book value (P/ABV) multiple from 1.25x to 1.0x, reflecting challenges in meeting the expected return profile and ongoing valuation pressures in the broader banking sector.

Despite the sharp fall in RBL's stock, Centrum believes that the concerns over growth, asset quality, and profitability are already reflected in the current share price. The brokerage highlighted that while the bank faces both internal and external challenges, its long-term strategy for diversified and sustainable growth is gradually taking shape.

Centrum expects a steady improvement toward a 1.1% RoA, particularly with the potential for an interest rate cut cycle and recovery in RBL's microfinance and credit card portfolios. With the stock currently trading at a low P/ABV multiple of 0.7x for the first half of FY27, Centrum sees this as an attractive buying opportunity.

On the liabilities side, RBL Bank’s total deposits grew by 20.3% YoY and 6.5% quarter-on-quarter (QoQ), with recurring deposits showing solid growth at 32% YoY and 4% QoQ. The bank's CASA (current account and savings account) ratio also improved, rising by 100 basis points to 33.6% from 32.6% in the previous quarter. This growth was attributed to the bank’s initiatives to strengthen its liability franchise.

While RBL’s liquidity position remains strong with loan-to-deposit (LDR) and liquidity coverage (LCR) ratios at comfortable levels of 81% and 129%, respectively, the bank’s margins were impacted by an interest income reversal of Rs 120 crore, driven by higher gross non-performing assets (GNPA) in the microfinance and credit card portfolios.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)