Higher NPAs, Opex dent earnings
RBL posted a miss in earnings (~33%) with PAT at Rs2.2bn/0.6% RoA, mainly due to dip in NIM to ~5%, higher staff cost (owing to pay hikes and ~800-900 in-house collection fleet added in Q2), and LLP (led by higher slippages in CC + MFI book). Credit growth also moderated to 15% YoY due to the bank’s strategy to prune its low-yielding corporate book and slowdown in unsecured loan growth (including Cards and MFI); however, the bank remains focused on building its high yielding secured retail/SME book for better RaRoC. GNPA ratio inched-up QoQ to 2.9% due to transitional pain in the BAF-RBL card portfolio (as the bank took charge of collection) and MFI book (mainly in Bihar). Bank expects asset quality pain to ease over the next 6M. We trim our estimates for FY25-27 factoring in higher staff cost and LLP, but retain BUY with TP of Rs325 (valuing the bank at 1.1x Sep-26E ABV). Current valuations remain inexpensive at 0.7x Sep-26E ABV. We recommend RBL for investors ready to trade near-term pain for long-term gain as the ongoing transformation should result in a sustained RoA of >1%.
We retain BUY on RBL with TP of Rs325
We trim our earnings for FY25-27E factoring in higher staff cost (partly offset by lower vendor payout as collection shifts to bank) and LLP, but retain BUY (TP of Rs325 valuing the bank at 1.1x Sep-26E ABV) given inexpensive valuations at 0.7x Sep-26E ABV. We recommend RBL for investors ready to trade near-term pain for long-term gain as the ongoing transformation should result in a sustained RoA of >1%.
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