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Should You Buy RBL Bank Shares After 20% Drop? Here Is What The Experts Say
RBL Bank shares have plunged a little under 20% as investors continued to remain worried over the sudden appointment of the central bank's chief general manager, Mr Yogesh Dayal, as an additional director on RBL's board for two years; current MD & CEO Mr Vishwavir Ahuja has gone on medical leave; and Executive Director Mr Rajeev Ahuja has been elevated as interim MD & CEO for a smooth transition.
Whenever, RBI appoints a nominee there could be worries like governance issues, escalating non performing assets or other things. It is not clear as yet on this sudden appointment and RBL Bank has said that it's capital adequacy remains strong.
Emkay Global reduces price target on the stock
"We believe, in order to comfort investors, more explanation will be required from management to justify the sudden exit of Mr Vishwavir Ahuja nearly six months before his term ends (Jun'22) and the RBI's intervention (typically seen in weak banks like Ujjivan, Dhanlaxmi, LVB, J&K Bank). We believe the story will unfold in due course.
That said, we draw some comfort from the appointment of Mr Rajeev Ahuja (part of the turnaround journey) as interim MD & CEO, healthy liquidity buffers/capital ratios (Tier I at 15.5%) and management's strategic intent to change the portfolio mix toward secured assets. However, near/medium-term business/asset quality dislocation is inevitable. Thus, we cut our earnings estimates for F22/FY23/FY24 by 176%/13%/12%. We also cut our P/ABV multiple to 0.7x Dec'23E from 0.9x. Accordingly, we cut the target price to Rs165 from Rs 215, given lower RoE (8-10% over FY23-24E vs. earlier 9-11%) and near-term management uncertainty. Retain Hold with under weight in EAP. We will keep an eye on any further development at the bank," Emkay Global has said in a report.
Motilal Oswal remain watchful
According to Motilal Oswal RBL Bank has reported a weak operating performance in recent years on elevated provisions and tepid NII trends, which adversely affected profitability.
"On the business front, loan growth remained muted, affected by a sharp decline in Micro Banking and the Business loan portfolio. However, the Credit Cards segment has shown a healthy recovery as card acquisition has picked up, while spends have seen a robust recovery. On the asset quality front, slippages remain elevated, while the increase in restructured book was led by the Secured business loans and the Micro Banking portfolio.
Current developments have raised concerns about the bank's ability to sustain a turnaround in its operating performance, while at the same time raising worries of similar actions by the regulator on other mid-size Banks, where the operating performance has been sub-optimal. We thus put our rating under review and remain watchful of further developments and await further clarity in the 3QFY22 result," the brokerage has said.
Conclusion
We believe that unless clarity emerges on the sudden appointment of an RBI officer on the board, investors would remain skeptical. The stock has been exceedingly volatile and plunged 20%, but has recovered marginally since and is still down 16%. At the moment unless there is a press release from RBL or the RBI, the stock is unlikely to recover in the short term.
