Bandhan Bank has posted decent results on the operating front however asset quality performance and outlook has raised some concerns that calls for cautious approach. With key states like Assam witnessing some stress due to Micro Finance bill the behaviour of customer profile in this region would be monitorable in coming months. Collection efficiency in the Emerging enterprise i.e. SME segment has declined from 94% in end of December to 92% by Mid-January, however the management has indicated that it would improve by March 2021. State of Assam witnessed steep decline in collection, down by 10% to 78% from December to Mid-Jan 2021. Head-line asset quality improved sequentially but which was a result of standstill asset classification norms, on a proforma basis the GNPA ratio showed a steep rise from 1.54% to 7.12% QoQ. ~95% of proforma slippages came in from the EEB segment. The proforma NPA includes part payments if not for that the NPA on that basis would have been ~3-3.5% which still is a meaningful rise. There has been no restructuring in loans and no write-offs as well.
Valuation & Outlook
We believe overall long term prospects and structural story remains intact for Bandhan Bank considering immense opportunities in the MFI segment, however near term uncertainties are likely to weigh in and could remain hangover on the stock for some time. Asset quality performance and developments in key states like Assam and West Bengal would call for a cautious approach for next quarter. We thus downgrade our rating from BUY to HOLD with a revised PT of Rs. 370 (from Rs. 460 earlier) by valuing the bank at 2.7xFY23E ABV.
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_BandhanBank_Q3FY21.pdf
Shares of Bandhan Bank Ltd was last trading in BSE at Rs.341.05 as compared to the previous close of Rs. 359.85. The total number of shares traded during the day was 2451549 in over 58221 trades.
The stock hit an intraday high of Rs. 372.4 and intraday low of 335. The net turnover during the day was Rs. 871615514.