Emkay feels the ongoing MFI stress in eastern markets and regulatory overhang of promoter stake dilution to around 40 percent from 62 percent will keep the stock under pressure in the near term.
Private sector lender Bandhan Bank's third quarter earnings missed analyst expectations on January 14 with rising asset quality concerns on account of rising stressed account in MFI segment.
The stock fell nearly 3 percent intraday on January 15. It was quoting at Rs 507.35, down Rs 11.60, or 2.24 percent, on the BSE at 1031 hours IST.
Net profit grew by a whopping 121 percent year-on-year to Rs 731 crore and net interest income increased 37 percent YoY to Rs 1,540.3 crore. Both were lower than the poll conducted by CNBC-TV18 that was pegged at Rs 783.7 crore and Rs 1,592.8 crore respectively, with loan book growing 84 percent YoY.
Asset quality also weakened further during the quarter ended December 2019 with gross non-performing assets (NPA) rising 17bps sequentially to 1.93 percent and net NPA climbing 25bps QoQ to 0.81 percent due to some stress in MFI/strict NPA recognition policy on Gruh's housing book as applicable to banks.
Bandhan Bank said the gross NPA excluding one large infra account was at 1.3 percent.
Provisions for bad loans increased significantly sequentially to Rs 295 crore from Rs 145.5 crore, though declined year-on-year from Rs 377.64 crore in Q3.
The lender made additional provision of Rs 200 crore on standard advances in microfinance portfolio in Northeast (mainly Assam) after the protests around CAB/NRC.
"The On-Time Recovery (OTR) in Assam has already improved to 94 percent from a low of 78 percent. The bank claims it had limited impact on asset quality from such events in past but remains vigilant and has prudently provided Rs 200 crore versus outstanding 30DPD+ portfolio of Rs 230 crore in Assam," Emkay said.
The brokerage feels the ongoing MFI stress in eastern markets and regulatory overhang of promoter stake dilution to around 40 percent from 62 percent will keep the stock under pressure in the near term.
However, it maintained long-term buy with a revised target price of Rs 650 (implying 25 percent potential upside from current levels) given its healthy liability/earnings profile and strong capital position to absorb such shocks.
However, Kotak Institutional Equities maintained reduce call on the bank and also cut target price to Rs 540 from Rs 550 as business performance was softer than normalised trends and benefit of the diversification would take time to fructify.
The brokerage revised its earnings downwards by 9-10 percent for FY21-22.
Nomura also slashed its target price on the stock to Rs 585 from Rs 625 per share earlier while maintaining neutral rating as earnings were marginally weaker than expected.
Pre-provision operating profit was a miss driven by slower AUM growth & multiple one-offs in operating expenses and NIMs, said the brokerage which cut FY20-22 EPS estimates by 3-5 percent factoring in the lower growth.Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.