Emkay Global Financial has given Hold recommendation for Bandhan Bank with a target price of Rs. 325 in its research report issued on May 15, 2022
Emkay Global Financial’s report on Bandhan Bank
Bandhan reported a strong PAT beat in Q4 at Rs19bn (est: Rs5.4bn). For FY22, it returned to profitability on the back of higher other income and negligible provisions as asset quality improved (GNPA ratio down 435bps to 6.5%). The bank expects growth/asset quality to gradually normalize in FY23 (mainly 2H), primarily led by MFI. Growth accelerated in Q4 to 15%, mainly led by relatively secured commercial banking and housing, while MFI growth was measured. However, growth prospects for the MFI industry are looking up, and Bandhan should be a key beneficiary. The bank expects overall growth to normalize at 20-25% in FY23, with the share of the non-MFI portfolio outgrowing and thus gradually diversifying away from the group MFI business. The total MFI stress pool moderated further to Rs119bn (19% of MFI loans/12% of overall loans) due to a combination of slippages/recovery and higher w-offs. The bank expects the pace of normal recovery to improve, along with the Assam relief scheme (Tranche 2/3) and CGFMU recovery (50% in FY23). Bandhan carries ~59% provisions on the stress pool and these provisions could be partly reversed with better recovery, thereby moderating LLP.
Factoring in a better growth trajectory and lower LLP, we raise our FY23E/FY24E earnings by 16-17% and expect RoE to return to 20-23% by FY24-25E. We upgrade the stock to Hold (from Sell) with a TP of Rs325 based on 2.2x FY24E ABV (vs. earlier Rs250 on 2x Dec’23E ABV), factoring in better RoE prospects partly offset by higher CoE.