Hold Bandhan Bank: target of Rs 175: ICICI Securities

ICICI Securities's research report on Bandhan Bank

Bandhan Bank (Bandhan) reported a weak set of numbers. PAT was muted at INR 1.1bn (0.2% RoA), burdened by a sharp 55bps dip in NIM (on account of bulky yield compression amidst continued mix change and modest improvement in cost of deposits), elevated credit costs and muted treasury gains QoQ. MFI slippages remain elevated QoQ, unlike a few peers that have shown 25–50% improvement QoQ. However, we reckon, Bandhan’s slippages’ rate is still relatively
better at 8–9% annualised vs. peers’ 14–16%; thus improvement hereafter could be gradual (vs peers). The bank has made substantial progress in mix change with secured book’s share now at ~55% (vs. 63% YoY) though have seen inch-up in non-EEB GNPA ratio as well. CET 1 was strong at 17.8%. Downgrade to HOLD (vs ADD).

Outlook

We cut our target price to INR 175 (vs INR 205), basis ~1x (vs. ~1.1x) FY27E ABV. Our TP is below forward RoA due to a) uncertainty of Bandhan’s portfolio performance on both growth and AQ in select states (Bihar, West Bengal and Assam) that are slated to go into elections in the near term and b) relatively weak positioning on ECL transition. Downgrade to HOLD (vs ADD).