Bandhan Bank share price: Shares of Bandhan Bank slipped as much as 3.2 per cent to Rs 214.65 apiece on the BSE on Monday (July 17) after the private sector lender reported lower-than-expected numbers for the June quarter of the current fiscal (Q1FY24). The stock recovered later but was still trading 1.47 per cent lower at Rs 218.50 on the BSE.

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On Friday, the lender reported an 18.66 per cent year-on-year (YoY) decline in profit after tax (PAT) at Rs 721 crore for the quarter ended June 30, 2023 (Q1FY24). The private sector lender had posted a profit of Rs 886.5 crore in the year-ago period. Its total income rose 1.1 per cent YoY to Rs 2,880 crore. Net Interest Income (NII), which is the difference between interest earned and interest expended, came in at Rs 2,490 crore, down 0.9 per cent YoY. Operating profit slipped 14.2 per cent over-year to Rs 1,560 crore. READ MORE

The bank's asset quality showed improvement on a yearly basis as gross non-performing assets (GNPAs) declined to 6.76 per cent of gross advances by the end of June 2023, from 7.25 per cent as of June 2022. However, on a sequential basis, GNPAs increased. It stood at 4.87 per cent in the March 2023 quarter. Net NPAs or bad loans rose to 2.18 per cent as against 1.92 per cent a year ago. On a quarter-on-quarter, (QoQ) basis too, bad loans increased (1.17 per cent).

Why the lender witnessed a rise in bad loans?

Bandhan Bank witnessed an inch up in GNPA/NNPA to 6.76%/2.18% (vs 4.87%/1.17% QoQ) and a decline in PCR at 69% (-800bps QoQ) on account of a change in classification for advance given under Emergency Credit Line Guarantee Scheme (ECLGS), amounting to Rs 5.8 billion to NPA in 1QFY24, analysts at JM Financial note. 

"However, this change in classification has not impacted the stress pool as the advances were already classified as SMA2. Bandhan has also made prudential provisions of 86 per cent on the same, although no provisions are required on these advances as per RBI," they added.

Bandhan Bank stock: What should you do post-Q1 nos?

Analysts at Nirmal Bang Securities note that Bandhan Bank’s 1QFY24 performance was slightly below their expectations, with NII/PPOP/PAT coming at a variation of -1.2%/-12.3%/- 3.2% against its estimates. The sequential decline of 6.3 per cent in net advances (due to a seasonal dip in the MFI segment) and the rise in GNPA from 4.9 per cent in 4QFY23 to 6.8 per cent in 1QFY24 were the key disappointments, it added.

NIM; however, held up at 7.3 per cent QoQ and the management has maintained its NIM guidance of 7–7.5 per cent for FY24. It expects credit growth to be back at 20 per cent by FY24-end and credit costs to normalise at 2 per cent (+/- 20 bps) in FY24.

"An improvement in the CASA ratio over the remaining part of FY24 and managing a judicious asset mix to maintain or improve yields and NIMs will be crucial. We have rolled forward our valuation to June 2025E ABV while lowering our target multiple to 1.5x (vs. 2x FY25E ABV earlier), which leads to a target price (TP) of Rs 247. We have revised our rating from buy to accumulate," the brokerage added.

JM Financial said that Bandhan Bank's pan-India presence, and focus on diversification of its book lead to expected RoA/RoEs of 2.8% and 22.2% by FY25E. It believes the risk-reward ratio is favourable at the current valuation of 1.3x FY25E P/BV and 6.2x FY25E P/E (the stock has corrected by 18 per cent from its recent peaks). "We value the stock at 1.8x FY25e P/BV and maintain BUY with a TP of Rs 320," the brokerage added.