Bandhan Bank shares in news post 3x jump in Q2 profit. Weak results, say analysts

Bandhan Bank's over 3 times surge in September quarter net profit failed to impress the Street. Net interest income (NII) missed analyst estimates while a moderation in asset quality raised concerns, even as the management stayed optimistic on prospects of the remaining quarters of FY24. Brokerage Motilal Oswal has cut its FY24 and FY25 profit estimates for the private bank by 3-5 per cent. Nuvama Institutional Equities has, in fact, slashed its earnings per share estimate for FY24 by 14 per cent and FY25 by 5 per cent.

While the management explained that the gross addition of Rs 1,550 crore to the special mention account (SMA) pool in the Emerging Entrepreneurs Business (EEB) vertical was in line with its guidance of 3 per cent of opening loans, the Street is not convinced, as other lenders in the same segment are seeing lower incremental stress, analysts said.

"Bandhan Bank reported a muted Q2FY24, with a slight PAT miss of 4 per cent, and elevated slippage run-rate. Higher opex kept the C/I ratio elevated at 47 per cent and further suppressed PPoP growth. SMA book has declined 130 bps QoQ to 4.2 per cent though CE continues to remain steady at 98 per cent," said Motilal Oswal Securities.

While the bank has suggested for strong recovery in loan growth and asset quality over a seasonally strong second half of the ongoing financial year, Motilal Oswal said it continues to remain watchful of asset quality and the potential recovery from CGFMU and ECLGS.

The private lender clocked a profit of Rs 721 crore for the September quarter compared with Rs 209 crore in the corresponding quarter last year. Net interest income (NII) for the quarter came in at Rs 2,443 crore compared with Rs 2,193 crore in the year-ago quarter.

CLSA said the gross non-performing loan ratio (in MFI) for Bandhan Bank has increased 450 basis points (bps) to 10.4 per cent, unlike what other microfinance players have experienced.

"Apart from this, the quarter was largely in line. Loan growth of 4 per cent QoQ was driven primarily by non-mortgage segments. NIMs were largely stable QoQ despite a rise in deposit costs. The expense ratio was a bit high, but we expect it to moderate. The asset quality trend in MFI is the key item to watch," it said.

The foreign brokerage has cut its profit estimates by 3-14 per cent and its target price to Rs 270 from Rs 290 earlier, downgrading its rating to 'Outperform' from 'Buy'.

"In Q2FY24, Bandhan’s NII missed consensus estimate due to weaker than expected asset growth of 1 per cent QoQ. Based on Bandhan’s business update, we had assumed asset growth of 4 per cent QoQ. More disappointing than the NII miss was the fact that fresh addition to the EEB SMA (1-90 DPD) pool remained high at 3 per cent, marginally higher QoQ," Nuvama Institutional Equities said.

Gross non-performing asset remained steady at 7.3 per cent as on September 30, 2023 compared with 7.2 per cent in the year-ago period.

"While the management explained that the SMA additions were in line with their guidance of 3-4 per cent, the Street remains worried on incremental SMA, given lower incremental stress at other MFIs. With lingering concerns on EEB, we retain ‘HOLD’. We leave our target multiple unchanged at 1.4 times BV FY25E. On lower earnings, our new target is Rs 235 from Rs 242 earlier," Nuvama said.

Motilal Oswal Securities has a target of Rs 250 on the stock.

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