Brokerage Motilal Oswal has maintained 'buy' rating on RBL Bank stock with a target price of Rs 415 a share. The price target has upside potential of 22 percent from the last closing price of Rs 339 a share. Shares of RBL Bank settled at Rs 339.50 apiece on the BSE at close on Thursday. The benchmark Sensex settled 271 points higher at 41,386.

On long-term stock performance, RBL Bank shares have corrected over 40 percent in the last one year, while the three-year return on the stock is also negative by over 12 percent.

Although analysts at Motilal Oswal have cut the brokerage's earnings estimate stating that any turnaround in corporate asset quality should drive strong earnings revival.

"We conservatively cut our earnings estimate for FY20/FY21 by 17%/13%; however, any turnaround in corporate asset quality should drive strong earnings revival and can sway target multiples on the upside. We revise our TP to INR415 (1.7x Sep-21E ABV) after factoring in the capital raise. Maintain Buy," the report said.

"RBK’s asset quality remained under pressure with the bank recognising stress from the identified pool. Management has guided for the remaining stress to be recognised in the coming quarter before earnings begin to normalise from FY21E. However, the sluggish economic environment and RBK’s exposure to BBB/BB & below pool remains a concern. Strong growth in the retail business was led by cards/MFI and the robust margins do provide some cushion to its operating performance," it added.

RBL Bank’s business growth slowed down to 20 percent in the third quarter of FY20 from an average of over 30 percent in many previous quarters, according to the banks’ Q3 earnings. The slowdown, as mentioned by management, is on account of muted economic environment in the country.

First Published:Jan 23, 2020 4:44 PM IST