Bandhan Bank Q1 results failed to meet analyst estimates, as the private bank reported weak asset quality metrics and high slippages in the MFI segment. Growth has been slower than peers, partly reflecting the weak recovery momentum in MFI portfolio, analysts said adding that despite the recent correction in the stock, they see limited upside trigger for now.
"While Q1 generally sees lower collections and higher delinquencies, Bandhan's elevated slippages and decline in PCR still leave much to be desired on the asset quality front. We have cut our earnings estimates by 11-14 per cent over FY24-26F, largely on the back of a weaker top line. We now expect Bandhan to deliver 18-19 per cent return on equity over FY24-26F (vs 20-21 per cent earlier)," Nomura India said.
This brokerage values Bandhan Bank at 1.5 times June 2025 book value per share and has a fresh share price target of Rs 270 against Rs 325 earlier. Kotak Institutional Equities has cut its target price on the stock to Rs 260 from Rs 280. Nuvama Institutional Equities has cut its target to Rs 242 from Rs 255 earlier. Nirmal Bang Institutional Equities has slashed its target to Rs 247 from Rs 325.
Shares of Bandhan Bank have fallen 11 per cent in the last one month against a 2.75 per cent rise in the Nifty Bank.
"While the stock has corrected, we believe Bandhan lags peers on asset quality improvement and revival in EEB loans. As such, we do not see upside triggers," Nuvama said.
Nomura India said Bandhan Bank saw a sharp sequential uptick in non-performing loans (NPLs) at 6.8 per cent against 4.9 per cent in the March quarter. This, it said, was partially impacted by a one-off item relating to reclassification of government guaranteed ECLGS loans.
Even adjusting for this, GNPLs were elevated at 6.2 per cent. Moreover, headline loan growth (already disclosed with the pre-1Q update) continues to be weak (gross loans up 7 per cent YoY and down 6 per cent QoQ), with the microfinance segment declining 12 per cent YoY.
Nirmal Bang said although return ratios should expand with the normalisation in credit costs, regaining loan growth momentum is key for the bank.
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While it is =hopeful of a rebound towards double-digit loan growth in H2FY24 as guided, in the near term, the CBS upgrade in 1 or 2 phases could lead to temporary disruptions for a couple of weeks in terms of growth and asset quality.
"Another area to pay attention to is the faster rise in deposit growth, especially high-cost term deposits versus loan growth, which was flat on YoY basis and could compress C/D ratio in the near term. Therefore, improvement in CASA ratio over the remaining part of
FY24 and managing a judicious asset mix to maintain/improve yields & NIMs will be crucial," it said.
Motilal Oswal said Bandhan Bank reported a disappointing 1QFY24, with a 19 per cent YoY decline in profit due to higher slippages and a 28 per cent YoY increase in other expenses.
"We continue to remain watchful of asset quality and the high SMA book despite the recoveries being expected from CGFMU and ECLGS in FY24. Hence, we reduce our estimates for PAT/PPoP for FY24/FY25 by 5 per cent/3 per cent each," it said while suggesting a target of Rs240 (premised on 1.6x FY25E ABV)," it said.
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