RBL Bank shares fall almost 3%; Motial Oswal, Kotak say buy

Shares of RBL Bank closed 2.91 percent lower at Rs 176.55 on BSE on July 29.

The stock jumped over 4 percent in the early trade but erased all the gains soon, falling about 4 percent in intraday trade. The strong volatility was seen in the stock a day after the bank reported a 47 percent decline in its June quarter net profit.

Excess provisions of Rs 460 crore dragged the bank's June quarter net profit to Rs 141 crore.

The bank said it set aside Rs 240 crore for COVID-19 related provisions, taking the total money set aside due to possible reverses because of the pandemic to Rs 350 crore.

Apart from it, the bank increased its provision coverage ratio (PCR) by setting aside an additional sum of over Rs 200 crore in March.

RBL Bank's management has guided muted business trends over the next two quarters with a higher focus remaining on garnering deposits and improving collections.

Read more: RBL Bank Q1 net profit down 47%

Brokerage firm Motilal Oswal Financial Services has a 'buy' call on the stock with a target price of Rs 230 but underscored the challenges for the bank going forward.

The brokerage expects RBL's loan growth to moderate, led by the weak environment due to the COVID-19 outbreak, which should drive a slowdown in consumer spending.

the current environment. So, it expects credit costs to remain elevated at 3.7 percent for FY21E.

Kotak Institutional Equities, too, has a 'buy' call on the stock with a target price of Rs 270, valuing the bank at 1.2 times book and 13 times March 2022 EPS for RoEs close to nearly 10 percent in the medium-term.

"While uncertainties remain in parts of the book such as credit cards, microfinance and BBB and below rated loans, bank’s comfortable capital position and funding profile that has now stabilized offer downside comfort to withstand adverse outcomes post-COVID," Kotak said.

Brokerage firm Emkay Global Financial Services, on the other hand, has a 'hold' call on the stock with a target price of Rs 195.

"We maintain a 'hold' with a revised target price of Rs 195 (based on 0.8 times Sep-FY22E ABV) from Rs 145 earlier (based on 0.6 times FY22E ABV)," Emkay said.

Emkay has reduced earnings estimates for FY21 and FY22 by nearly 4 percent and 2 percent, respectively, factoring in slower business or fee growth and higher LLP.

"We expect RBL’s RoA to remain flat and low at 0.6 percent in FY21, but should improve in FY22/FY23 to 1.1/1.4 percent as business growth picks up and LLP moderates," Emkay said.

In Emkay's views, RBL raised capital timely with current Tier I at 15.2 percent and thus, management guides that it does not need any immediate fresh capital raise.