JPMorgan has downgraded the target price for RBL Bank to Rs 225 from its previous estimate of Rs 270, maintaining a ‘Neutral’ stance. The reduction comes after the bank posted a Q2 FY25 profit after tax (PAT) of Rs 2.2 billion, down 24% year-on-year. The bank’s return on equity (RoE) was reported at 6%, which was below JPMorgan’s expectations, primarily due to a sharp rise in provisioning from higher unsecured delinquencies.
The bank highlighted increased stress on its credit card and microfinance (MFI) portfolios, with gross and net slippages rising by 43% and 55% quarter-on-quarter, respectively. As a result, advances growth slowed to 15% year-on-year, falling short of the 20%+ CAGR guidance for FY24-26, driven by a cautious approach in unsecured lending.
While the return on assets (RoA) profile for the wholesale and secured retail businesses showed improvement, the overall RoA declined by 50 basis points to 0.64%, overshadowed by weakness in the unsecured lending segment. The management remains optimistic about achieving their FY26 RoA target of 1.4-1.6%, but JPMorgan sees this as challenging, especially if the current credit cycle persists.
JPMorgan acknowledged that valuations are attractive at 8x FY26 P/E, but sees limited potential for a re-rating in the current uncertain credit environment. The current market price (CMP) of RBL Bank is Rs 205.
Disclaimer: This article is for informational purposes only and should not be construed as financial advice. Please consult a financial advisor before making any investment decisions.
