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Bandhan Bank Ltd>
  • CMP : 209.2 Chg : 1.05 (0.50%)
  • Target : 265.0 (11.34%)
  • Target Period : 12-18 Month

23 May 2023

Revival in Q4; balance sheet restructuring underway…

About The Stock

Bandhan Bank was incorporated in 2015 as the RBI granted a universal banking license. The bank has a strong presence in eastern and north-eastern India with MFI loans being its forte while acquisition of Gruh Finance boosted the home loan book.

  • Total ~52% of loans are from emerging enterprise business (EEB)
  • The bank has 1411 branches in 34 states, UTs & customer base of 3 crore

Revival in earnings driven by lower provisions.

  • NII down 2.7% YoY as NIMs contracted 140 bps QoQ to 7.3%
  • Provision down 52% QoQ to ₹ 735 crore resulting in ~3x increase in PAT at ₹ 808 crore
  • Loan growth was slower at ~10% YoY; strong traction in non-MFI book
What should Investors do?

Micro-finance industry is witnessing pick up in credit growth and revival in repayments, thus offering good opportunity. Continued focus on non-MFI book and retail products (like CV, LAP etc) with aim to preserve granularity of balance sheet while improving diversification. Near term performance could remain volatile; sustenance of RoA needed to drive valuation.

  • Thus, we maintain our HOLD rating on the stock
Target Price and Valuation

We value Bandhan Bank at ~1.7x FY25E ABV and maintain our target price at ₹ 265.

Key Triggers for future price performance
  • Growth guidance healthy at ~20% YoY for FY24E. Continued focus on non-MFI book to result in improved granularity and diversification of asset base
  • Continued investment in branches, tech and business promotion activities to keep CI ratio elevated, though benefit to accrue gradually
  • Moderation of stress in EEB book coupled with adequate provisioning buffer to keep credit cost largely steady and aid earnings and return ratios
  • Expect partial recovery from CGFMU in Q1FY24. Further, anticipated inflows from Assam relief scheme remains triggers to be watched
Alternate Stock

Apart from Bandhan, we also like CreditAccess Grameen.

  • CAG is well positioned to capture the huge untapped opportunity in MFI space via deeper geographical penetration and increase in customer base
  • BUY with a target price of ₹ 1375

Key Financial Summary

Particulars FY20 FY21 FY22 FY23 3 Year CAGR(FY20-FY23) FY24E FY25E 2 Year CAGR (FY23-FY25E)
NII 6,323.9 3,291.9 8,714.0 9,259.6 13.6 10,306.9 12,481.2 16.1
PPP 5,446.5 2,583.8 8,013.3 7,092.1 9.2 7,617.7 9,002.5 12.7
PAT 3,023.7 -2,066.0 125.7 2,195.4 -10.1 3,384.9 4,334.8 40.5
ABV (|) 91.9 63.8 97.7 114.0 - 131.7 155.4 -
P/E 13.2 -18.6 304.0 17.5 - 11.3 8.8 -
P/ABV 2.6 3.7 2.4 2.1 - 1.8 1.5 -
RoE (%) 22.1 -14.6 0.8 11.9 - 16.1 17.7 -
RoA (%) 3.9 -2.0 0.1 1.5 - 2.0 2.3 -
Source: Company, ICICI Direct Research

Variance Table

  Q4FY23 Q4FY23E Q4FY22 YoY (%) Q3FY23 QoQ (%) Comments
NII 2,472 2,279 2,540 -2.7 2,080 18.8 Slower business growth impacted NII
NIM (%) 7.3 7.2 8.7 -140 bps 6.5 80 bps Aided by increase in yields and lower interest reversals
Other Income 629 1,109 964 -34.8 1,033 -39.1 Excluding income from technical written off a/cs, other income stood steady QoQ
Net Total Income 3,101 3,389 3,504 -11.5 3,114 -0.4  
Staff cost 727 770 570 27.5 687 5.9  
Other Operating Expenses 578 503 412 40.1 505 14.5 Continued investment in franchise kept CI higher
PPP 1,795.7 2,115.3 2,521.4 -28.8 1,922.2 -6.6  
Provision 734.8 1,199.8 4.7 15,473.7 1,541.5 -52.3 Credit cost declined to 2.9% vs 6.4% of total advances 
PBT 1,060.9 915.5 2,516.7 -57.8 380.7 178.7  
Tax Outgo 252.6 227.0 614.3 -58.9 90.1 180.3  
PAT 808.3 688.4 1,902.3 -57.5 290.6 178.2 Revival in earnings on sequential basis
Key Metrics              
GNPA 5,299 7,417 6,380 -16.9 6,965 -23.9 GNPA improved to 4.9% vs 7.2% QoQ
NNPA 1,228 1,854 1,564 -21.5 1,711 -28.2  
Advances (Gross) 1,09,120 1,09,075 99,340 9.8 97,787 11.6 Credit growth continued to remain weak
Deposits 1,08,070 1,08,083 96,331 12.2 1,02,283 5.7  


Q4FY23 Earnings Conference call highlights

  • Guidance – Credit growth to be 20% YoY led by retail segment & diversification, CASA ratio at 40%, NIM at 7-7.5%, credit cost at ~2%, RoA at 2.6-2.8% and RoE at 18-20%
  • Secured book was at 42% and expected to be at 50% by FY26E
  • Retail loans (which include personal loan, gold loan, 2-W loan and auto loan) grew 133% YoY and 110% QoQ. Commercial Banking (SME and NBFC Lending) grew 72% YoY and 29% QoQ. Housing finance book grew 13% YoY
  • MFI customers contributed to < 4% of total deposits
  • The bank continued to remain a dominant player in the east and is aiming for geographic diversification, deeper market penetration and localised hiring, going ahead
  • The bank will be focusing on the new products like CV, LAP and government business operation
  • Stress pool fell from | 7600 crore to | 5500 crore
  • Average ticket size of EEB Disbursement was | 50,000 for Group Loans and | 1,20,000 for Individual Loans. Micro Credit Portfolio Geographical Break-up: West Bengal: 36%, UP: 10%, Bihar: 14% and Assam: 7%
  • Overall slippages in the EEB Book were | 730 crore and Non-EEB Slippages were ~ | 388 crore. Slippages in Small Enterprise Loan (part of commercial banking) were |66 crore with recoveries of | 18 crore resulting in net slippages of | 48 crore. Gross slippages in SME were | 68 crore with recoveries of | 49 crore. Slippages in housing finance were | 231 crore with recoveries at | 191 crore
  • The bank added 14 lakh customers in Q4FY23




I/We, Kajal Gandhi, CA, Vishal Narnolia, MBA and Pravin Mule, MBA, M.com, Research Analysts Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.                             


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