Why RBL Bank Shares Are Down Despite Near 37% Jump In Q4 Profit

Shares of RBL Bank declined after Motilal Oswal Financial Services Ltd. downgraded the lender's ratings after cutting its earnings estimates due to high opex and credit costs.

RBL Bank's fourth-quarter net profit rose 36.8% year-on-year to Rs 271 crore. Analysts polled by Bloomberg estimated a Rs 223.02 crore net profit for the three months.

It reported a full-year net profit of Rs 883 crore, against a loss of Rs 75 crore in FY22.

Net interest income grew 7% year-on-year to Rs 4,451 in FY23, compared to Rs 4,027 last year.

RBL Bank Q4 FY23

• Net Profit: Rs 271 crore vs Rs 198 crore (YoY)

• NII: Rs 1,211 crore vs Rs 1,131 crore (YoY)

• GNPA: 3.37% vs 3.61% (QoQ)

• NNPA: 1.10% vs 1.18% (QoQ)

Motilal Oswal has downgraded the bank's rating to 'neutral' with a target price of Rs 185, implying an upside of 14%, according to an April 30 note from the brokerage.

The brokerage marginally cut its estimates to factor in higher operating expenses and elevated credit costs going forward.

RBL Bank's credit costs for Q4 FY23 stood at 29 basis points, down 10 bps sequentially. The bank's credit costs for all of FY23 stood at 149 basis points. The rise in credit costs is likely to limit the expansion of the return on assets, the brokerage said.

Meanwhile, Morgan Stanley expects RBL Bank to deliver lower than industry average returns. Morgan Stanley maintains a rating of 'underweight' on RBL Bank with a target price of Rs 130, implying a potential downside of 20%.

The brokerage expects retail loan growth to improve and lead to a better pre-provision operating profit in fiscal 2024, according to a April 30 note.

But it believes coverage remains below peer banks.

"Overall coverage, including restructured loans, improved (56% vs. 53%) but was lower than at peer banks," the note said. "Management guided for 1.5-2.0% credit costs in FY24, and said FY23 credit costs were likely to close to a trough," it continued.

The brokerage expects the share of new segments, such as mortgages, vehicles, gold, and MSME loans, to increase to 30% by FY26 from the current 8%.

It further stated an expectation of growth regarding cards and MFI to be faster than that of the overall loan book.

Shares of the bank fell 4.02% to Rs 155.30 apiece, compared to a 0.59% gain in the benchmark Nifty 50 as of 2:30 p.m. on Tuesday.

Of the 19 analysts tracking the stock, nine maintain a 'buy,' three suggest a 'hold', while seven suggest a 'sell,' according to Bloomberg data. The average 12-month consensus price target implies a potential upside of 11.1%.