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RBL upside may be capped despite QIP deal

RBL stock declined 13 per cent in the last six days to close at Rs 325 on Wednesday as against its recent QIP price of Rs 351.

, ET Bureau|
Updated: Dec 12, 2019, 08.36 AM IST
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The RBL stock has declined 54 per cent from its 52-week high of Rs 716.55 on 28 May.
Mumbai: Shares of RBL Bank which has raised about Rs 2,900 crore last week, unlikely to see any sharp upmove in the near term due to higher credit costs, dilution of equity amid the bank’s high exposure to ‘BBB’ and below rated corporates, according to analysts.

The bank raised about Rs 2,900 crore through qualified institutional placement (QIP) and preferential allotment last week by diluting about 18 per cent of its equity. The fund raising would aid its capital adequacy thus providing the growth capital, but analysts are still worried about its uncertain asset quality outlook.

RBL stock declined 13 per cent in the last six days to close at Rs 325 on Wednesday as against its recent QIP price of Rs 351. Though valuations have corrected from 3.6 book a few months back to 1.5 times FY21 book currently, a lack of visibility on asset quality and muted profitability will restrict any up move in the stock price, said analysts “Although capital raising is positive, RBL’s high exposure of to BBB and below rated corporates which is almost 55 per cent of corporate loan book implies high risk of continued elevated slippages,” said Sumeet Kariwala, analyst, Morgan Stanley. “We expect return on equity to remain at low teens over the next few years given elevated credit costs. We expect the bank to see muted earnings trends in the near term given continued weakness in asset quality.”
rbl-graph

The RBL management expects total stressed assets at conservatively about Rs 1,800 crore and recognised additional NPA of Rs 800 crore in the second quarter after providing for about Rs 350 crore. RBL’s loan growth moderated significantly gave a weak macro environment, while margins contracted owing to volatile interest rates and lacklustre CASA growth. Asset quality deteriorated sharply in retail, leading to higher credit costs and a rise in the cost-toincome ratio. Its return on equity (RoE) is below cost of equity for longer, said analysts.

“The recent capital raise has improved the bank’s shock absorption capacity; however, near-term stock movement will largely track bank’s asset-quality performance amid rising corporate stress and return on assets trajectory,” Anand Dama, analyst, Emkay Global. “Near-term asset quality pain for RBL inevitable which could pause its RoA’s (return on assets) upward trajectory”.

The RBL stock has declined 54 per cent from its 52-week high of Rs 716.55 on 28 May. Management recently said that deterioration in the credit environment has had impact on the bank more than they initially anticipated and resolutions have also been slower.

“The QIP would provide growth opportunity but the given the economic conditions and stress in the book we expect growth to be moderate and profitability to be muted in the near term” said Deepak Kumar, analyst, Narnolia Financial Advisors.

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