Bandhan Bank Q3 results muted: What should investors do?

In Q3FY23, bandhan bank posted a net profit of 290.6 crore, a decline of 66% YoY, while Net Interest Income (NII) fell 2% YoY during the quarter 2,080.4 crores. On the other hand, the bank’s provisions shot up in 1,541 crores Q3FY23 Vs 806 crores year-on-year. The quarter-on-quarter gross NPAs were muted at 7.2% in the third quarter of the current fiscal, but dropped from 10.8% in Q3FY22.

Bandhan Bank shares closed on Friday 237.05 broadly flat on BSE. Its market cap is around 38,185 crores.

What should investors in Bandhan Bank stock do after Q3?

In its post-Q3 research note, Motilal Oswal on the bank said, “Bandhan Bank (Bandhan) characterized 3QFY23 by sluggish business growth, sluggish NII, and higher provisions. Margins shrank 50bp QoQ to 6.5%, which The interest income was impacted. However, the bank expects the margin to improve as the margin as of Dec’22 was over 7.3%.”

On the other hand, Motilal’s note highlighted that advances grew by 2% QoQ 921 billion even though the MFI portfolio declined by 2%, supported by a healthy 14% QoQ growth in the non-MFI portfolio. Deposit growth was modest, with a sharp decline in the CASA ratio.

Whereas the gross NPA of the bank remained stable at 7.2%/1.9% respectively in 3QFY23 with PCR at ~75%. slippage moderated from 32.65 billion 39.54 billion in 2QFY23. Motilal’s note said, excluding NPAs, CE increased to 98% from 95% in Sep’22, while SMA overdue in MFI book fell to 8.1% from 13.0% in 2QFY23.

The brokerage is eyeing asset quality and high SMA book, which it believes could push up credit costs for Bandhan Bank.

Motilal noted that the management commentary indicated that slippages are likely to decline sharply in 4QFY23. post-adjustment for cash realization of 4.14 billion from the sale to ARC, the provision number will remain in line with guidance. Further, in the medium term, after achieving the business diversification target, the bank is expected to maintain its NIM at ~7.5%. Meanwhile, it expects loan growth to remain at 20-25% in FY24-25 with focus on improving business and geographic diversification and housing business is expected to maintain 25% YoY growth.

On valuations, Motilal’s note said, “Bandhan registered a slowdown in Q3 FY23, with interest reversal adversely impacting NIM, while slippages/provisions remained high. Loan growth remained modest, however, in A gradual pick-up is expected. And the MFI portfolio has come down to 8.1% from 13.0% in 2QFY23. We keep an eye on asset quality and high SMA book, which could keep credit costs high. Thus we finance Let’s assume an ROA/ROE of 2.7% / 22.4% in year 25. And keep neutral with TP 270 (based on 1.8x Sep’24E ABV).”

Bandhan Bank had sold stressed loans in December last year. Rs 8,897 crore 801 crore to the Asset Reconstruction Company (ARC). This is the first such instance for the private lender.

According to ICICI Direct, balance sheet restructuring is in progress and performance remains volatile due to high pressure in the EEB segment. Expected stability in low return ratio to mute the performance of the stock. Thus, the brokerage has maintained its ‘Hold’ rating on the bank’s stock. It added, “Rolling to FY25E, we value Bandhan Bank at ~1.9x FY25E ABV and revise down our target price from 300 265. Stable position performance will be important for re-rating.

ICICI Direct also highlights the key triggers for the future performance of the bank. these:

Healthy loan growth guidance (~22% + YoY) with higher growth traction in the non-MFI book to support margin and earnings growth

– Management indicated easing pressure on deposits, going forward focus will be on retail deposits

– Recovery from the Assam Relief Scheme to support the top-line and stabilize credit costs

Disclaimer: The views and recommendations given above are of individual analysts or broking companies and not of Mint. We advise investors to do due diligence with certified experts before making any investment decision.