Q2 Results: RBL Bank Slumps As Brokerages Cut Target Price On Asset Quality Concerns

Shares of RBL Bank Ltd. fell as much as 19.6 percent, their second-worst trading performance since listing, after most analysts cut target price on the stock following a weak earnings performance.

The lender’s gross non-performing assets ratio jumped to 2.6 percent from 1.3 percent in the first quarter, according to its exchange filing. It set aside Rs 533.30 crore in provisions during the quarter compared with Rs 139.86 crore a year ago.

RBL Bank’s net profit, too, fell 73.4 percent year-on-year to Rs 54.3 crore in the quarter ended September.

The stock is down over 56 percent so far this year, compared with a 9.6 percent gain in the S&P BSE Sensex. According to brokerages, an improvement in asset quality and fundraising will be the key to improving sentiment.

Here’s what brokerages have to say about RBL Bank’s second-quarter performance…

Morgan Stanley

• Reduces EPS estimates as it builds in higher non-performing loans/slower growth.
• Cuts FY20, FY21 and FY22 earnings estimates by 42 percent, 25 percent and 24 percent, respectively.
• Slashes target price by 40 percent to Rs 240 and stays ‘underweight’.
• Remains cautious on asset quality given a weak macro environment.
• Bank expects another quarter of high Gross bad loans/provisions, after which it expects earnings to improve.
• Bank has tightened underwriting standards incrementally in corporate and retail segments.

JPMorgan

• Cuts target price to Rs 280 from Rs 330 a share.
• Asset quality stress likely to depress near-term earnings.
• Sees a risk of slippage on the guidance of returning to normalcy by March.
• Second-quarter credit cost materially higher than earlier guided by the bank.
• Company’s disclosed stress book has high probability of slipping into NPA.
• BB and below book has gone up by 200 basis points sequentially and its rationalisation over the next two quarters, along with an equity raise, key to improving sentiment.

Emkay

• Cuts EPS estimates by 13 percent for FY20 and FY21 each.
• Target price cut by 8.6 percent to Rs 320 apiece.
• Healthy core performance but asset quality slips as recognition begins.
• Corporate asset quality stress is likely to result in higher loan loss provisions.
• Expects the bank will raise capital in FY20 to improve its shock absorption capacity.

Nirmal Bang

• Cuts target price to Rs 389 from Rs 463; but retains ‘buy’ rating on the stock.
• Lowered PAT estimates by -10 percent/-5.2 percent/-4.5 percent for FY20/FY21/FY22, respectively.
• RBL accelerates NPA recognition and makes excess provision.