Bandhan Bank (BANBAN)
CMP: | 297 Target: | 330 (11%) Target Period: 12 months HOLD
May 9, 2021
Near term uncertainty persists… Bandhan Bank posted weak results on the operating front with elevated provisioning hurting profitability. Asset quality performance and
developments in key states like Assam and West Bengal would call for a cautious approach in the near term.
Collection efficiency (including write-off) saw improvement from 92% to Particulars 95% QoQ in the micro banking segment. Key state of Bengal saw collections rise from 90% to 95% QoQ but in Assam collection efficiency dipped from Particulars Values
88% to 83%. As per management commentary, collections in April 2021 Market Capitalisation | 47835 crore Update Result declined ~3-4% from the March level. Networth | 17408 crore Asset quality on a reported basis saw a spike as GNPA ratio jumped from 52 week H/L (|) 430 / 195 1.18% to 6.81% QoQ due to removal of standstill norms. On a proforma Face Value (|) 10.0 basis, asset quality appears to have improved from GNPA proforma level of DII Holding (%) 1.9 7.12% in the previous quarter but this was led by accelerated write-off worth FII Holding (%) 34.9
| 1930 crore during the quarter. Total restructuring was at | 617 crore i.e. 0.71% of its loans. The bank holds additional provisions of | 388 crore Key Highlights against standard micro banking portfolio. Reported GNPA spikes to 6.8% from The bank has made additional provisions to the tune of | 1000 crore during 1.18% QoQ the quarter for Covid-19 related impact. Citing increased stress and, thus, Loans worth | 1930 were written-off
provisioning requirement, the bank had increased its credit cost guidance from 3.5% to 5%. during the quarter Marred by stress recognition, NII was down 15.2% QoQ to | 1757 crore. This Maintain HOLD with revised target was mainly on account of reversal of | 525 crore of interest due to NPA price of |330 recognition. NIM fell considerably from 8.3% to 6.8% QoQ. Other income was up 57% YoY and 42% QoQ to | 787 crore. On account of lower topline Risk to our call and increased cost due to business activity the C/I ratio was sequentially up to 32% from 27%. During the quarter the bank made total provisions worth Increased impact of Covid-19 may | 1594 crore of which additional NPA provisions to the tune of | 1034 crore
hit collections. Thus, delinquencies were against existing NPA resulting from elevated risk in certain
may rise Research Equity Retail geographies. As a result, PAT was down 80% YoY to | 103 crore.
– Loan growth for the quarter was healthy on a yearly basis at 22.5% YoY to Better than expected growth revival | 81613 crore but sequential growth trajectory was subdued at 1.7%. could boost profitability Deposit accretion during the quarter was also strong at 36.6% YoY to | 77972 crore. This was helped by 61% YoY rise in CASA deposits. As a result, CASA ratio increased from 36.8% to 43.4% YoY. Research Analyst Valuation & Outlook Kajal Gandhi Securities ICICI Microcredit at 67% of loan book and lower than expected recoveries due to [email protected] second Covid wave have further raised caution towards the bank. With loan Vishal Narnolia portfolio in key states like West Bengal and Assam facing challenges due to [email protected] multiple reasons and clarity on law change awaited, near term outlook on overall asset quality is uncertain. The management has indicated that they Sameer Sawant plan to build provisions buffers irrespective of external environment, which [email protected] could keep credit cost elevated. Restructuring in non-micro book is also
elevated. Hence, we maintain our HOLD rating with a revised target price of | 330 (| 370 earlier) by valuing the bank at 2.5xFY23E ABV. Key Financial Summary FY19 FY20 FY21 FY22E FY23E CAGR (FY21-23E) NII 4496 6324 7563 9940 12234 27% PPP 3748 5447 6855 8240 10226 22% PAT 1951 3024 2205 3935 5353 56% ABV (|) 92.0 91.9 90.3 102.2 133.5 P/E 18.2 16.4 21.7 12.2 8.9 P/ABV 3.2 3.2 3.3 2.9 2.2 RoE (%) 19.0 22.1 13.5 20.4 22.6 RoA (%) 3.9 3.9 2.1 3.1 3.3 ss
Source: Company, ICICI Direct Research ICICI Direct Research Result Update | Bandhan Bank
Exhibit 1: Variance Analysis Q4FY21 Q4FY21E Q4FY20 YoY (%) Q3FY21 QoQ (%) Comments Growth marred by sharp fall in margins due to interest NII 1,757 2,062 1,680 4.6 2,072 -15.2 reversals
NIM (%) 6.8 8.1 8.1 -133 bps 8.3 -150 bps Interest reversals of | 538 crore dented margins
Other Income 787 525 500 57.4 553 42.3
Net Total Income 2,544 2,587 2,180 16.7 2,625 -3.1 Staff cost 426 384 362 17.6 435 -2.1 Other Operating 389 342 297 30.8 276 40.9 Sequential rise due to increased business activity
PPP 1,729.5 1,861.0 1,520.7 13.7 1,914.1 -9.6 Elevated provisions due to accelarated provisions of | Provision 1,594.3 1,060.9 827.4 92.7 1,068.7 49.2 1034 crore PBT 135.2 800.1 693.3 -80.5 845.4 -84.0 Tax Outgo 32.1 203.2 176.0 -81.7 212.8 -84.9 PAT 103.0 596.9 517.3 -80.1 632.6 -83.7 High provisions dented profitability
Key Metrics Proforma asset quality declined but was driven by GNPA 5,758 3,264 993 480.0 859 570.1 write-off worth | 1930 crore NNPA 2,861 979 389 634.7 201 1,321.1 Advances 81,613 81,607 66,630 22.5 80,260 1.7 Sequential growth remained modest
Deposits 77,972 76,878 57,082 36.6 71,183 9.5 Healthy traction driven by CASA
Source: Company, ICICI Direct Research Exhibit 2: Change in estimates FY22E FY23E (| Crore) Old New % Change Old New % Change Net Interest Income 9,182 9,940 8.3 11,564.9 12,234 5.8 Pre Provision Profit 7,783 8,240 5.9 9,876.4 10,226 3.5 NIM (%) 7.9 8.0 6 bps 8.0 8.1 10 bps PAT 3,989 3,935 -1.3 5,058.4 5,353 5.8 ABV (|) 111.4 102.2 -8.3 141.0 133.5 -5.3
Source: Company, ICICI Direct Research Exhibit 3: Assumption Current Earlier FY20 FY21 FY22E FY23E FY21 FY22E FY23E Credit growth (%) 68.1 22.5 22.2 23.0 18.6 26.6 27.1 Deposit Growth (%) 32.0 36.6 27.2 27.2 28.9 27.1 27.2 CASA ratio (%) 36.8 43.4 43.0 42.6 43.7 43.3 42.9 NIM Calculated (%) 9.1 7.6 8.0 8.1 8.2 7.9 8.0 Cost to income ratio (%) 32.2 29.1 30.4 29.4 29.1 29.4 28.2 GNPA (| crore) 992.8 5,633.5 5,919.6 6,272.6 3,367.8 3,653.9 3,996.5 NNPA (| crore) 389.4 2,861.0 4,629.7 4,678.6 2,450.0 2,493.3 2,527.3 Slippage ratio (%) 1,040.5 4,990.0 572.3 705.9 2,500.0 572.3 685.2 Credit cost (%) 2.3 4.9 3.0 2.5 4.0 2.5 2.5
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 2 ICICI Direct Research Result Update | Bandhan Bank
Key conference call highlights
Asset Quality
Collection across the board declined by 3-4% from March levels Total write-off during the quarter were at | 1930 crore of which | 772 crore is from Assam and | 671 crore from West Bengal. Slippages for the quarter were at | 3195 crore In terms of customers, 4.1 lakh customer accounts were written -off Of the total | 617 crore restructuring, 50% is towards self-employed segment in housing loans Only less than 1% customer not paying single instalment NPA in housing segment is ~3%
Business
Cumulative ECLGS loans were at | 1830 crore in which 53% were from West Bengal and 20% from Assam Average Savings account rate is 5.15% Looking to expand into new geographies
Others
Interest reversal for the quarter was at | 538 crore The management intends to build provision buffer, going ahead Other income improved due to PSLC fee and distribution income
ICICI Securities | Retail Research 3 ICICI Direct Research Result Update | Bandhan Bank
Story in charts
Exhibit 4: Credit growth to pick up gradually
92.3 160000 83.9 100 140000 80 120000 63.7 33.6 100000 22.6 14.1 60 80000 19.4
(| crore) (| 40 60000 23.2 (%) 40000 9.3 20
20000
64186 65456 71538 74330 76620 80260 81613 108998 134269 0 0 Q2FY20 Q3FY20 FY20 Q1FY21 Q2FY21 Q3FY21 FY21 FY22E FY23E
AUM YoY growth (%)
Source: Company, ICICI Direct Research
Exhibit 5: Loan mix – Micro and Non-micro loans FY20 Q1FY21 Q2FY21 Q3FY21 FY21 FY22E FY23E Gross advances (AUM) 66630 74330 76620 80260 88238 108998 134269 Net advances (O/s Loan Book) 66630 74330 76620 80260 81613 99722 122674 Micro loans 46189 47478 49780 53050 58350 71383 89228 Non micro loans 20441 26852 26840 27210 23263 28340 33446
Source: Company, ICICI Direct Research
Exhibit 6: Healthy deposit accretion Exhibit 7: Margin trajectory
140000 50 12 45 120000 43.0 42.6 42.8843.39 43.4 43.0 40 10 100000 37.0838.23 35 80000 8 30 60000 % 6
25 (%) (| crore) (| 40000 20 4
20000 15
54908 57082 60602 66130 71183 77972 99146 126097
49195 2
8.0 9.4 10.5 8.2 7.9 9.1 8.2 8.3 6.8 7.6 8.0 8.1 0 10 10.5
0
FY20 FY21
FY22E FY23E
FY19 FY20
Q2FY20 Q3FY20 Q1FY21 Q2FY21 Q3FY21
FY21E FY22E FY23E
Q2FY21 Q3FY19 Q1FY20 Q2FY20 Q3FY20 Q1FY21 Q3FY21 Q4FY21 Deposits CASA ratio (%) NIM
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
Exhibit 8: Sharp spike in NPA levels Exhibit 9: Return ratios
7000 6.9 8.0 28 30 6000 5.9 7.0 24 1.2 5.1 6.0 25 22 23 23 5000 20 20 5.0 19 4000 20 3.9
4.0 % 14 14 14 3000 1.2 15 13
2.1 2.0 1.8 1.9 3.0 (%)
(| crore) (| 1.5 1.4 2000 2.0 10 4.9 4.8
1000 1.0 2.9 3.9 3.6 3.6 3.6 3.1
851 1064 1182 993 1007 874 859 5633 5920 6273 820 5 2.3 2 2.1 2.1 0.4 0 0.0
0
FY19 FY20 FY21
FY22E FY23E
FY19 FY20 FY21
Q1FY20 Q2FY20 Q3FY20 Q1FY21 Q2FY21 Q3FY21
FY22E FY23E
Q3FY19 Q1FY20 Q2FY20 Q3FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 GNPA GNPA ratio (%) ROE (%) ROA (%)
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 4 ICICI Direct Research Result Update | Bandhan Bank
Exhibit 10: Customer accretion trend Lakh Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Borrowers 117.3 201 203.1 208.2 224.8 230.0 Micro borrowers 105 154 154.6 157.7 171.3 175 Non micro borrowers 12.3 47.0 48.5 50.5 53.5 55.0
Source: Company, ICICI Direct Research
Exhibit 11: Shareholding pattern (in %) Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Promoter 61.0 61.0 40.0 40.0 40.0 FII 13.1 14.5 32.2 35.2 34.9 DII 8.8 8.0 4.9 4.4 1.9 Others 17.2 16.5 21.9 21.9 23.2
Source: Company, BSE, ICICI Direct Research
Exhibit 12: Price Performance
800 14000 700 12000 600 10000 500 8000 400 6000 300 200 4000 100 2000
0 0
Oct-18 Oct-19 Oct-20
Apr-21 Apr-18 Apr-19 Apr-20
Bandhan Bank NSE500 Index
Source: Company, Company, ICICI Direct Research
ICICI Securities | Retail Research 5 ICICI Direct Research Result Update | Bandhan Bank
Financial summary
Exhibit 13: Profit and loss statement | crore Exhibit 14: Key Ratios (| Crore) FY19 FY20 FY21 FY22E FY23E (Year-end March) FY19 FY20 FY21 FY22E FY23E Interest Earned 6644.1 10885.5 12524.2 16442.5 20292.0 Valuation Interest Expended 2148.4 4561.6 4960.9 6502.5 8057.6 No. of Equity Shares (Crore) 119.3 161.0 161.1 161.1 161.1 Net Interest Income 4,495.7 6,323.9 7,563.3 9,940.0 12,234.4 EPS (|) 16.4 18.1 13.7 24.4 33.2 BV (|) 93.9 94.4 108.1 130.9 162.6 growth (%) 40.7 19.6 31.4 23.1 ABV (|) 92.0 91.9 90.3 102.2 133.5 Non Interest Income 1063.4 1549.2 2109.1 1903.5 2253.6 P/E 18.2 16.4 21.7 12.2 8.9 Operating Income 5559.1 7873.1 9672.4 11843.4 14488.0 P/BV 3.2 3.1 2.7 2.3 1.8 Staff cost 1008.7 1367.0 1664.6 2063.9 2420.7 P/ABV 3.2 3.2 3.3 2.9 2.2 Other Operating expense 802.2 1059.5 1152.5 1539.2 1841.3 Yields & Margins (%) Operating profit 3748.1 5446.5 6855.2 8240.4 10225.9 Net Interest Margins 9.4 9.1 7.6 8.0 8.1 Provisions 735.1 1393.2 3906.6 2958.5 3040.8 Yields on Loans 15.4 17.0 14.1 15.0 14.9 Exceptional items 0.0 0.0 0.0 0.0 0.0 Cost of funds 5.5 5.8 5.2 5.4 5.3 PBT 3013.0 4053.4 2948.6 5281.9 7185.0 Quality and Efficiency (%) Taxes 1061.6 1029.7 743.2 1346.9 1832.2 Cost to income ratio 32.6 32.2 29.1 30.4 29.4 Net Profit 1951.5 3023.7 2205.4 3935.0 5352.8 GNPA 2.1 1.5 6.9 5.9 5.1 EPS (|) 16.4 18.1 13.7 24.4 33.2 NNPA 0.6 0.6 3.5 4.6 3.8
Source: Company, ICICI Direct Research ROE 19.0 22.1 13.5 20.4 22.6 ROA 3.9 3.9 2.1 3.1 3.3
Source: Company, ICICI Direct Research
Exhibit 15: Balance sheet | crore Exhibit 16: Key ratios (%) (| Crore) FY19 FY20 FY21 FY22E FY23E (Year-end March) FY19 FY20 FY21 FY22E FY23E Sources of Funds Total assets 27.4 62.5 25.4 23.7 25.7 Capital 1193 1610 1611 1611 1611 Advances 33.4 68.1 22.5 22.2 23.0 Reserves and Surplus 10009 13585 15798 19475 24570 Deposit 27.6 32.0 36.6 27.2 27.2 Networth 11202 15195 17408 21085 26181 Total Income 97.5 41.6 22.9 22.4 22.3 Deposits 43232 57082 77972 99146 126097 Net interest income 87.0 40.7 19.6 31.4 23.1 Borrowings 521 16379 16960 18656 22388 Operating expenses 16.5 2.1 -7.1 -3.4 -5.0 Other Liabilities & Provisions 1487 3062 2652 3315 4144 Operating profit 219.7 45.3 25.9 20.2 24.1 Total 56442 91718 114993 142203 178809 Net profit 296.9 54.9 -27.1 78.4 36.0 Applications of Funds Net worth 19.4 35.7 14.6 21.1 24.2 EPS 61.1 10.6 (24.3) 78.4 36.0
Fixed Assets 331 369 487 584 701 Investments 10038 15352 25156 30187 36224 Source: Company, ICICI Direct Research Advances 39643 66630 81613 99722 122674 Other Assets 6430 9367 7738 11710 19210 Total 56442 91718 114993 142203 178809
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 6 ICICI Direct Research Result Update | Bandhan Bank
Exhibit 17: ICICI Direct coverage universe (BFSI) CMP M Cap EPS (|) P/E (x) P/ABV (x) RoA (%) RoE (%) Sector / Company (|) TP(|) Rating (| Bn) FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E SBI (STABAN) 358 410 Buy 3196 20.0 28.1 30.5 18 12.8 11.7 1.6 1.4 1.3 0.4 0.6 0.6 7.4 9.6 9.5 Indian Bank (INDIBA) 113 180 Buy 127 16.9 29.1 45.5 6.7 3.9 2.5 0.7 0.6 0.6 0.4 0.5 0.7 6.1 8.5 12.5 Axis Bank (AXIBAN) 717 900 Buy 2195 25.2 47.7 58.7 28.4 15.0 12.2 2.5 2.1 1.8 0.8 1.3 1.4 8.1 13.8 15.2 City Union (CITUNI) 170 200 Buy 125 10.0 10.0 10.0 17.0 17.0 17.0 2.5 2.2 2.2 1.2 1.3 1.3 11.2 11.9 11.9 DCB Bank (DCB) 90 130 Hold 28 11.0 14.0 16.0 8.2 6.4 5.6 0.9 0.8 0.7 0.9 1.1 1.1 10.4 11.8 12.0 Federal Bank (FEDBAN) 77 90 Buy 155 7.7 7.9 10.0 9.9 9.8 7.7 1.2 1.1 1.0 0.9 0.8 0.9 11.1 10.4 12.0 HDFC Bank (HDFBAN) 1,414 1,700 Buy 8085 56.4 66.4 77.8 25.1 21.3 18.2 3.9 3.5 3.2 1.9 1.9 2.0 16.6 17.0 17.9 IndusInd Bank (INDBA) 926 1,100 Buy 715 36.8 56.5 66.5 25.2 16.4 13.9 1.9 1.8 1.7 0.8 1.1 1.2 7.4 10.3 11.7 J&K (JAMKAS) 24 25 Hold 17 7.5 10.4 0.0 3.2 2.3 ### 0.3 0.3 1.0 0.5 0.6 0.0 8.1 10.6 0.0 Kotak Bank (KOTMAH) 1,779 2,040 Buy 3527 35.1 43.2 51.4 50.6 41.2 34.6 5.8 5.1 4.4 1.8 1.9 2.0 12.4 12.0 13.1 Bandhan (BANBAN) 297 330 Hold 478 14.7 24.7 31.4 20.2 12.0 9.5 3.4 2.7 2.1 2.3 3.2 3.3 15.0 21.9 22.2 IDFC First (IDFBAN) 57 52 Buy 351 NA 100.5 103.2 NA 0.6 0.6 2.1 1.9 1.6 0.3 0.5 0.9 2.7 4.8 8.3
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 7 ICICI Direct Research Result Update | Bandhan Bank
RATING RATIONALE ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock Buy: >15% Hold: -5% to 15%; Reduce: -15% to -5%; Sell: <-15%
Pankaj Pandey Head – Research [email protected]
ICICI Direct Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093 [email protected]
ICICI Securities | Retail Research 8 ICICI Direct Research Result Update | Bandhan Bank
ANALYST CERTIFICATION
I/We, Kajal Gandhi, CA, Vishal Narnolia, MBA and Sameer Sawant, MBA Research Analysts Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.
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ICICI Securities | Retail Research 9