Should You Buy Bandhan Bank Shares Post Q1: Shares of Bandhan Bank Ltd. were trading with gains of as much as 13 per cent on Monday. This was after the lender’s first-quarter earnings positively surprised analysts, with profits well ahead of estimates.
Analysts upped their earnings projections for FY25 and FY26 to 7-12 per cent but their revised price targets on the stock suggest the positives are already in the price.
Bandhan Bank reported a steady quarter with the earnings beat propelled by controlled opex and provisions. Net interest income (NII) growth was healthy, aided by stable margins. The deposit growth was modest but the management expects deposits to grow faster than advances.
“Asset quality deteriorated slightly; however, slippages moderated, while CE remained steady at 99 per cent. Moreover, the bank, on a conservative basis, has increased the risk weights in the EEB book. The management expects a positive outcome from the ongoing CGFMU audit, which is to be completed shortly. We raise our earnings estimates for FY25/26 by 10 per cent/11 per cent and expect an FY26E RoA/RoE of 2.2 per cent/ 18.9 per cent,” MOFSL said.
This brokerage suggested a ‘Neutral’ rating on Bandhan Bank with a revised target price of Rs 220 apiece.
Axis Securities raised its FY25 and FY26 PAT estimates by 9 per cent and 7 per cent, respectively, building in higher growth and lower credit cost. The brokerage raised its target price on Bandhan Bank to Rs 195 while maintaining a ‘Reduce’ call on the stock.
Nuvama said the 48 per cent YoY surge in profit on a low base beat consensus estimate by 35 per cent.
“That said, the bank took a hit of 362bp on CAR as it increased risk weights on EEB loans from 75 per cent to 125 per cent based on its conservative reading of the RBI’s November risk-weight circular. Given the lower capital, we retain the target price at Rs 200 and ‘HOLD’. Feedback from other MFI lenders suggests they do not need to mark down capital. The CEO guided for stable-to-declining slippages,” Nuvama said.
CLSA has revised upward its stock price target to Rs 240 from Rs 210 earlier. Jefferies has upped its target on Bandhan Bank to Rs 240 while JPMorgan has a price target of Rs 260 on the scrip.
For JPMorgan, the numbers were well ahead of estimates, driven by higher non interest income and lower provisions. It said that Bandhan Bank’s net interest income (NII) and pre-provision operating profit (PPOP) rose 21 per cent on-year and 24 per cent on-year, respectively. The bank’s assets under management (AUM) grew 22 per cent on-year, and non-interest income rose 37 per cent on-year.
The growth in non-interest income was aided by the release of provisions from Security Receipts (SR) redemption and recovery from written-off accounts.
The bank’s asset quality performance was better than expected in a seasonally weaker quarter with overall gross slippages falling below 3 per cent after 14 quarters.
Additionally, the net flow into the 0+ Microfinance Institution (MFI) book was contained at 3.4 per cent.
CLSA entered Bandhan Bank’s results with muted expectations on asset quality due to the bank’s elevated slippage trend and stress in the MFI environment.
However, the foreign brokerage said that it was positively surprised as net slippages declined by 50 per cent on-year, and credit costs dropped to 1.7 per cent from 2.4 per cent on-year.
The first quarter is typically slow for balance sheet growth, and this quarter showed no exception.
The management continues to maintain its 18-20 per cent loan growth target for the year, largely coming in the second half.
The bank’s net interest margin (NIM) remained stable, and operating expenses were in line with expectations
CLSA has raised its profit estimates by 5-7 per cent, driven largely by 20 basis points lower credit costs.
Bandhan Bank shares have corrected 12 per cent so far this year and has declined 5 per cent over the last 12 months.
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