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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
Q4FY23

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

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