loader2
NRI
Bandhan Bank Ltd>
  • CMP : 169.7 Chg : -0.78 (-0.46%)
  • 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

Disclaimer

ANALYST CERTIFICATION

 

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.                             

 

Terms & conditions and other disclosures:

 

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products.

ICICI Securities is Sebi registered stock broker, merchant banker, investment adviser, portfolio manager and Research Analyst. ICICI Securities is registered with Insurance Regulatory Development Authority of India Limited (IRDAI) as a composite corporate agent and with PFRDA as a Point of Presence. ICICI Securities Limited Research Analyst SEBI Registration Number – INH000000990. ICICI Securities Limited SEBI Registration is INZ000183631 for stock broker. Registered Office Address: ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025. CIN: L67120MH1995PLC086241, Tel: (91 22) 6807 7100.  ICICI Securities is a subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.

Investments in securities market are subject to market risks. Read all the related documents carefully before investing.

 

Registration granted by Sebi and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. None of the research recommendations promise or guarantee any assured, minimum or risk-free return to the investors.

 

Name of the Compliance officer (Research Analyst): Mr. Anoop Goyal

Contact number: 022-40701000 E-mail Address: complianceofficer@icicisecurities.com

 

For any queries or grievances: Mr. Prabodh Avadhoot Email address: headservicequality@icicidirect.com Contact Number: 18601231122

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities and its analysts, persons reporting to analysts and their relatives are generally prohibited from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

 

Recommendation in reports based on technical and derivative analysis centre on studying charts of a stocks price movement, outstanding positions, trading volume etc as opposed to focusing on a companys fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit icicidirect.com to view the Fundamental and Technical Research Reports.

 

Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.

 

ICICI Securities Limited has two independent equity research groups: Institutional Research and Retail Research. This report has been prepared by the Retail Research. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, and target price of the Institutional Research.

 

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.

 

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.

 

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.

 

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.

 

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.

 

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.

 

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

 

ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.

 

Since associates of ICICI Securities and ICICI Securities as a entity are engaged in various financial service businesses, they might have financial interests or actual/beneficial ownership of one percent or more or other material conflict of interest various companies including the subject company/companies mentioned in this report.

 

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

 

Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.

 

We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.

 

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

 

Read More