Buy Bandhan Bank; target of Rs 300: Emkay Global Financial

Emkay Global Financial's research report on Bandhan Bank

Bandhan Bank once again reported a miss on PAT, at Rs2.9bn (vs our est of Rs5.8bn), mainly due to weaker margins and higher provisions, partly offset by recovery from sale of NPAs to ARC (Rs4.1bn) and the CGFMU recovery. Bank guides for better growth/NPA recovery hereon, which will lead to improvement in earnings. Gross slippages were higher at Rs33bn/16.3% of loans, as Bank continues to recognize stress from the MFI portfolio, incl. RSA. The MFI stress pool (SMA 1 & 2) now stands at Rs24.6bn/3% of overall loans/5% of MFI loans. Bank expects recovery from CGMFU and the Assam loan relief scheme should further reduce NPAs from the current 7.2% of loans. Credit growth was moderate at 11% YoY/2% QoQ in 3Q, as the MFI book continues to contract. However, the bank expects growth to improve in 4Q, which is a seasonally strong quarter for MFI disbursements. This, coupled with some softness in NPA moderation, should support margins, which slipped in 3Q to a low of 6.5%.

Outlook

We cut our FY23E earnings, factoring-in the miss in 3Q, but expect improvement in the RoA to 1.5%-2.6% and in RoE to 12%-22% over FY23-25E, respectively, owing to better growth/asset quality. We retain our BUY rating on the stock, with TP of Rs300 (based on 1.9x Dec-24E ABV), given the expected improvement in asset quality/earnings trajectory from 4Q and reasonable valuations.

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