RBL Bank shares rise 20% in a day. Should you invest?

RBL Bank, formerly known as Ratnakar Bank, witnessed a strong bull run on Wednesday with shares skyrocketing nearly 20% in the day. The robust performance in shares come after the bank offloaded its entire stake in Kilburn Engineering. The bank plans to raise ₹3,000 crore through the issuance of debt securities on private placement. Experts are optimistic about RBL Bank shares going forward as the lender is expected to adopt a more calibrated-growth approach for the current financial year.

On BSE, RBL Bank shares settled at ₹122.25 apiece up by ₹18.15 or 17.44%. The shares clocked an intraday high of ₹124.90 apiece - resulting in an overall rise of 19.98% in the day.

The bank's market capitalisation is around ₹7,329.07 crore on Dalal Street.

On Tuesday, RBL Bank shares announced that it has further sold the balance of 3,50,000 equity shares representing 1.02% (entire equity shareholding) of the paid-up share capital of Kilburn Engineering.

In Kilburn, RBL Bank has been offloading its stake in tranches from May 17 to August 23, 2022. So far, the bank has sold 67,50,000 equity shares representing 19.67% in Kilburn aggregating to over ₹30.61 crore. Now, the bank does not hold any equity shares of Kilburn.

Earlier, this week, RBL Bank's board of directors approved the issue of debt securities on a private placement basis, from time to time, up to an amount of ₹3,000 crore.

Should you invest in RBL Bank shares?

In the investor meeting with RBL Bank’s new MD and CEO, R Subramaniakumar, Emkay Global highlighted that the bank is expected to adopt a more calibrated-growth approach in FY23 and beyond, unlike in the past.

Analysts Anand Dama, Heet Khimawat, Dixit Sankharva, and Soumya Jain at Emkay in their note dated August 22, said, "The bank expects ~15% (+/-10%) growth in FY23 on a low base, but estimates sustainable growth of 20-25% thereafter. The focus, hereon, will be on delivering diversified & granular growth with a higher share of secured assets. That said, the bank remains determined to re-accelerate growth in the cards business, while MFI book deceleration is largely behind. To de-risk the card portfolio being highly dependent on BAF (76% of CIF), the bank is entering into multiple co-branding/sourcing partnerships. On the secured retail front, focus will be more on mortgages/vehicle loans, while the bank would also build a healthy SME portfolio to improve the asset-portfolio tenure and support CASA mobilization."

On asset quality, the analysts in the note said, "we believe some intermittent asset quality hiccups cannot be completely ruled out, particularly when the external environment is fragile and internal stress recognition standards are being strengthened."

On valuations, these analysts said, "We believe the current dismal valuations (0.4x FY24 ABV) largely ignore the new management’s strategy (which is appropriate in our view) that focuses on sustainable growth/returns now and be more regulatory-compliant v/s the previous high-risk/high-return strategy that partly led to regulatory intervention. We also take comfort from the bank’s higher capital level (Tier I -16%). Thus, we recommend Buy on RBL Bank, for investors who are ready to see through the near-term transitional pain for reaping gains in the long term."

Among key risks for the bank, the analysts in their note highlighted - a high level of management attrition disrupting the growth/asset-quality improvement story; and break-up of card tie-up with BAF.

On the other hand, post Q1 results, ICICI Securities in its note said, "building in higher cost structure being in an investment mode, we revise our earnings estimate lower by 5%/6% for FY23E/FY24E, respectively. Overall, we expect it to deliver RoAs of 1.0-1.1% and RoEs of 8-10% over FY23E/FY24E."

RBL Bank is one of India’s leading private sector banks with an expanding presence across the country.

In Q1FY23, RBL Bank posted a net profit of ₹201 crore compared to a net loss of ₹459 crore in the same quarter last year. Net interest income (NII) stood at ₹1,028 crore up by 6% from ₹970 crore in Q1FY22. The bank's provisions declined and asset quality improved.

As of June 30, 2022, the Bank has 502 bank branches and 1,302 business correspondent branches, of which 289 are banking outlets. RBL Finserve, a 100% subsidiary of the Bank, accounts for 789 business correspondent branches.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.