Bandhan Bank shares tank 6% despite two-fold rise in Q3 profit; here’s why

Shares of Bandhan Bank Ltd fell over 6% on Monday even as the lender reported an over two-fold increase in net profit for the third quarter. Net profit zoomed 152% to Rs 733 crore in the December 2023 quarter led by an improvement in core income. The Kolkata-based bank had reported a net profit of Rs 291 crore in the year-ago period.

But investor sentiment was weak with the Bandhan Bank stock tanking 6.5% to Rs 202.20 on BSE.

Axis Securities said Bandhan Bank continues to grapple with asset quality concerns, especially in the Emerging Entrepreneurs Business (EEB) book, while most of its peers have shown remarkable improvement in asset quality. This has been the primary reason for the stock to underperform.

The brokerage has lowered its earnings estimates by 8-11% over FY24-25E considering the slower growth and asset quality improvement.

It has revised upwards its rating on the banking stock.

“We value the stock at 1.5x Sep'25E ABV vs. current valuations of 1.4x Sep'25 ABV to arrive at a target price of Rs 240 per share. The target price implies an upside of 11% from the current market price, owing to which we revise our rating from HOLD to BUY,” said Axis Securities.

The crash in the banking stock can also be attributed to a report in Business Line which said National Credit Guarantee Trustee Company (NCGTC) was currently conducting an audit of loan claims the lender filed under the Credit Guarantee Fund for Micro Units (CGFMU) scheme. The auditor is examining evergreening or window dressing of loans, the report added.

The NCGTC, which comes under the Union Ministry of Finance, oversees and run different credit guarantee trust funds. The audit covers Rs 23,300 crore of loans lent under credit guarantee schemes. The total loan amount includes Rs 20,800 crore covered under Credit Guarantee Fund for Micro Units (CGMFU) and Rs 2,500 crore of loans covered under government’s Emergency Credit Line Guarantee Scheme (ECLGS).

Meanwhile, market cap of Bandhan Bank fell to Rs 32,717 crore on BSE. At 12:18 pm, Bandhan Bank stock was trading 6.08% lower at Rs 203.10 on BSE. The stock was among the top BSE losers in the afternoon session.

The large cap stock has lost 17 per cent in one year and fallen 17.53 per cent in 2024.

Bandhan Bank shares are trading lower than the 5 day, 10 day, 20 day, 30 day, 50 day, 100 day, 150 day and 200 day moving averages. A total of 23.39 lakh shares of the lender changed hands, amounting to a turnover of Rs 48.69 crore on BSE.

The stock hit a 52-week high of Rs 272 on June 1, 2023 and fell to a 52 week low of Rs 182.20 on March 28, 2023.

Nuvama has maintained its hold call on the banking stock with a target of Rs 216. It has revised earnings estimates downward for the lender.

"Bandhan’s PAT missed consensus by 15% due to higher provisions and lower other income. While there was some improvement in SMA, it remained high at 3.3% (4.2% QoQ) and non-performing loans (NPLs) rose sharply driving an increase of 9% QoQ in EEB stress. While EEB slippage fell in value, the lagged ratio rose from 7.4% to 7.5% QoQ. A vintage analysis shows that NPLs on loans disbursed in Q3FY23 (which is just a year ago), touched 2.5% in Q3FY24 from 0.6% QOQ," said Nuvama

"Management attributed high stress to weak collections in October 2023 due to festivals and CBS migration with 45% of total slippage (Rs 10 bn) of Q3FY24 in October. We cut earnings sharply and revise target price to Rs 230/1.5x BV 1Y forward from Rs 235 earlier. Maintain HOLD," added Nuvama.

Total income climbed to Rs 5,210 crore in Q3 from Rs 4,840.94 crore a year ago.

Interest income also improved to Rs 4,665 crore in the last quarter as against Rs 3,808 crore in the third quarter of the previous fiscal.

Net interest income rose to Rs 2,530 crore in Q3 from Rs 2,080 crore in the corresponding period of the preceding year.

Coming to the asset quality, gross NPAs (Non-Performing Assets) fell to 7 per cent in Q3 compared to 7.2 per cent at the end of October-December quarter of previous fiscal.

However, net NPAs climbed to 2.2 per cent in Q3 compared with 1.9 per cent in the previous year. Provision and contingencies fell to Rs 684 crore over Rs 1,541 crore in FY23.

Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.

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