Bandhan Bank Q3 results muted: What should investors do?


Kolkata-headquartered private lender Bandhan Bank witnessed subdued third quarter earnings (Q3FY23) with both net interest income (NII) and profitability on the dip side. The stock will be in focus this post-Q3. Going forward, the bank’s management expects to sustain loan growth and a sharp drop in slippages by Q4 of FY23. Brokerage Motilal Oswal continues to remain watchful of the bank’s asset quality.

In Q3FY23, Bandhan Bank posted a net profit of 290.6 crore down by a whopping 66% YoY, while net interest income (NII) fell 2% YoY during the quarter to 2,080.4 crore. On the other hand, the bank’s provisions shot up to 1,541 crore in Q3FY23 versus 806 crore year-on-year. Gross NPA was muted at 7.2% in Q3 of the current fiscal quarter-on-quarter but dropped from 10.8% in Q3FY22.

On Friday, Bandhan Bank shares closed at 237.05 apiece broadly flat on BSE. Its market cap is nearly 38,185 crore.

What should investors do in Bandhan Bank stock post-Q3?

In its post-Q3 research note, Motilal Oswal on the bank said, “Bandhan Bank (BANDHAN) reported a muted 3QFY23 characterized by sluggish business growth, tepid NII, and elevated provisions. Margin contracted 50bp QoQ to 6.5%, hit by interest income reversals. However, the bank expects the margin to improve as Dec’22 margin was higher at 7.3%.”

On the other hand, Motilal’s note highlighted that advances grew 2% QoQ to 921 billion even as the MFI portfolio declined 2%, supported by a healthy 14% QoQ growth in the non-MFI portfolio. Deposit growth was modest with the CASA ratio witnessing a sharp decline.

While the bank’s gross NPA remained stable at 7.2%/1.9%, respectively, with PCR at ~75% in 3QFY23. Slippages moderated to 32.65 billion from 39.54 billion in 2QFY23. Motilal’s note added, excluding NPA, CE improved to 98% from 95% in Sep’22, while SMA overdue in the MFI book dipped to 8.1% from 13.0% in 2QFY23.

The brokerage continues to remain watchful of asset quality and the high SMA book which it believes can keep credit costs elevated for Bandhan Bank.

Motilal cited that management commentary indicated slippages in 4QFY23 are likely to drop sharply. Post-adjusting for cash recovery of 4.14 billion from the sale to ARC, the provisioning numbers would remain in line with guidance. Also, over the medium term, post-achieving the business diversification goal, the bank is expected to maintain NIMs of ~7.5%. Meanwhile, it expects loan growth to sustain at 20-25% over FY24-25 with a focus on improving business and geographical diversification and expects to maintain 25% YoY growth in the housing business.

On valuation, Motilal’s note said, “BANDHAN reported a muted 3QFY23, with interest reversals adversely impacting NIM, while slippages/provisions remained elevated. Loan growth remained modest; however, the same is expected to pick up gradually. The SMA overdue in the EEB and MFI portfolios has declined to 8.1% from 13.0% in 2QFY23. We continue to remain watchful of asset quality and the high SMA book, which can keep credit costs elevated. We thus estimate an RoA/RoE of 2.7%/22.4% in FY25 and maintain Neutral with a TP of 270 (premised on 1.8x Sep’24E ABV).”


Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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