Bandhan Bank Q4 profit tanks 57.5%; what should be the strategy now?

The asset quality improved with gross non-performing assets falling 228 bps sequentially to 4.87% and net NPA down 69 bps to 1.17% for Q4FY23.

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Bandhan Bank share price will remain in focus on May 22 after company declared weak earnings for the quarter ended March 2023.

Bandhan Bank registered a massive 57.5% year-on-year decline in profit at Rs 808 crore for March FY23 quarter.

Net interest income fell 2.7% to Rs 2,472 crore compared to similar quarter last year, with 140 bps decline in net interest margin.

However, asset quality improved with gross non-performing assets falling 228 bps sequentially to 4.87% and net NPA down 69 bps to 1.17% for Q4FY23.

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Here is what brokerages have to say about stock and the company post March quarter earnings:

Motilal Oswal

The company reported a healthy 4QFY23, characterised by improving NII, declining provisions, and a superior asset quality. Margin improved by a 80bp QoQ to 7.3%, led by a 14% QoQ growth in advances.

The SMA overdue in the EEB portfolio has declined to 5.6% from 8.1% in 3QFY23.

Motilal Oswal continue to remain watchful of asset quality and the high SMA book, which can keep credit costs elevated.

Thus, they estimate an RoA/RoE of 2.5%/~21% in FY25 and reiterate their neutral stance with a Target Price of Rs 265 (premised on 1.8x Sep’24E ABV).

Nirmal Bang

Bandhan Bank’s profitability gained momentum in 4QFY23 on a sequential basis, driven by NIM expansion and lower provisions. NII increased by 18.8% QoQ (down 2.7% YoY) to Rs 24.7 billion, coming in above the estimate as calculated NIM expanded by 77bps QoQ to 7.1%.

Additionally, the management expects NIM to sustain at ~7-7.5% going forward. The cost of funds (CoF) remained flat in 4QFY23 on the back of improving deposit mix, further supporting NIM. Opex increased at a faster clip as the bank continues to invest in expanding and diversifying its presence.

Moreover, the management expects opex to remain at current levels as the bank continues to invest in its expansion and some moderation is expected from FY25 onwards.

The bank reported RoA of 2.2% and RoE of 17% in 4QFY23 and expects RoA/RoE to be ~2.6-2.8%/ 18-20% going forward. Asset quality
continues to improve on the back of improving collection efficiency (CE), which now stands at pre-covid levels (excluding NPA for March’23).

Maintain Buy on Bandhan Bank with a target price (TP) of Rs 325, valuing it at 2x FY25E ABVPS.

Investec

Research firm Investec has maintained sell, rating on the stock with a target at Rs 200 per share. The management is embarking on an ambitious overhaul of its business.

In the MFI segment, the bank is pivoting away from group to individual segment, while in secured business, the growth has been very opportunistic.

The steady state RoE will moderate to 15 percent, and expect the company to raise equity over the next 12-18 months.

Jefferies

The brokerage house maintained Buy call on Bandhan Bank with a target price of Rs 340 per share.

The non-performing loan (NPL) formation has normalized and is expected to remain under control in next year. The topline growth is weak in Q4 during the fourth quarter but can improve.

Jefferies expect bank getting BACK TO 20 PERCENT return on equity (RoE) level FY24 onwards. The valuations at 1.8x FY24 adjusted price-to-book (PB) are attractive and can re-rate.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.