RBL Bank share price fell 6.6 percent intraday on May 8 after the private lender reported a sharp drop in Q4 profit and muted loan and deposit growth. Most analysts remain bearish on the stock on account of the coronavirus outbreak hitting business.
The stock, which has fallen more than 80 percent in the last one year, was quoting at Rs 120.70, down 6.36 percent on the BSE at 1358 hours.
Despite the sharp correction, HDFC Securities maintained its reduce rating with a target of Rs 136, given elevated risks and sub-par expected return ratios.
"RBL Bank's Q4 earnings were higher versus estimates on account of sharper-than-expected margin expansion (not sustainable) and lower than expected loan loss provisions (elevated nevertheless, to persist), but balance sheet growth was constrained as deposits dipped 8 percent QoQ (1 percent YoY). RBL faces challenges on both sides of the balance sheet -- potential stress from high unsecured loan exposure and a weak deposit franchise," the brokerage said.
The private sector lender reported a 53.7 percent year-on-year (YoY) decline in standalone profit at Rs 114.36 crore due to 207.1 percent jump in provisions.
Net interest income grew by 38.2 percent to Rs 1,020.98 crore YoY with advances book growth at 7 percent YoY (down 3 percent QoQ), but total deposits reduced 1 percent YoY (down 8 percent QoQ).
Asset quality also weakened with gross non-performing assets (NPA) as a percentage of gross advances rising 29 basis points QoQ to 3.62 percent, but net NPA declined 2 basis points QoQ to 2.05 percent as of March 2020.
"Gross NPLs increases by 30 bps, with slippages staying elevated at annualised 5 percent (corporate book clean-up and portfolio mix change).
Credit cost was high at annualised 4.2 percent, also driven by accelerated provision on recognized corporate stress (PCR up 600 bps) and Rs 115 crore COVID-related (included full 10 percent provisions on standard-but-overdue accounts, 100 percent provisions on cards NPLs and contingent provisions on retail portfolio),” said Yes Securities.
It said asset quality risks include 33 percent of portfolio opting for moratorium till April 30; BB & Below at 6.5 percent (few lumpy exposures); BBB rated portfolio at 20 percent and 7.5 percent BBB & BB rated exposure to COVID-hit sectors.
While retaining reduce call with a target price of Rs 135, the brokerage said it cut FY21/22 earnings estimates by 88/44 percent due to sharp adverse adjustments to loan growth, fee growth and credit cost.
Key FY21 expectations of the bank are: a) cautious on growth; cards and MFI drivers in second half of FY21, b) NIMs to witness some compression due to surplus liquidity and interest reversals, c) credit cost similar or mildly higher than FY20 (3.6 percent).
"Given its portfolio complexion, the bank faces heightened near-term macro uncertainty, which will keep a check on valuation. Asset quality and growth trends in Cards, MFI and LAP segments critical to valuation," said Yes Securities.
Emkay believes RBL's expected business/return on assets (RoA) normalisation from FY21 could be pushed back due to COVID-19-led disruption. Hence, the brokerage retained hold rating with a target price of Rs 145 due to lower valuations and timely shoring up of capital (Tier I over 15 percent) but retained underweight rating in its Emkay Alpha Portfolio.
Motilal Oswal said the asset quality would continue to remain under pressure, with concerns over retail as the COVID-19 outbreak would impact delinquency trends in the portfolios of credit cards/MFI and MSME.
"Around 33 percent of the loan portfolio availed moratorium; thus, we expect credit cost trends to remain elevated at 3.6 percent for FY21.
Furthermore, the bank's BBB-/BB-rated exposures to COVID-19-impacted sectors stood at 5.6/1.8 percent. This may pose a risk as the business environment remains weak, thus prolonging the slippage trend in the Wholesale portfolio," it said.
The brokerage cut its PAT estimate for FY21/FY22 by 6/5 percent, as it factored in moderation in fee income led by reduced economic activity and lockdown but maintained a buy call with a target of Rs 180 per share.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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