Bandhan Bank (BANBAN)
CMP: | 291 Target: | 310 (7%) Target Period: 12 months HOLD
August 1, 2021
Weak performance; still time to recover…
About the stock: Bandhan Bank was incorporated in 2015 as RBI granted a Particulars universal banking license. The bank has a strong presence in eastern and north- eastern India with MFI loans being its forte. Particulars Values Market Capitalisation | 46919 crore
Total 66% of loans are from emerging enterprise business (EEB) Networth | 17783 crore 52 week H/L (|) 430 / 251 Also, 1152 branches in 34 states, UTs and total customer base of 2.3 crore Equity Capital | 1611 crore
Face Value (|) 10.0 Update Result
Q1FY22 Results: Bandhan Bank reported a deterioration in asset quality. Shareholding pattern (in %) Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 GNPA up 137 bps QoQ to 8.18%; restructuring at | 4661 crore (5.8% of book) Promoter 61.0 40.0 40.0 40.0 40.0 Accelerated provisions of | 751 crore, PCR up from 50% to 62% QoQ FII 14.5 32.2 35.2 34.9 35.4 DII 8.0 4.9 4.4 1.9 2.0 NII up 20% QoQ, NIMs improve 170 bps QoQ to 8.5% Others 16.5 21.9 21.9 23.2 22.6
Loan growth flat YoY while deposits up 27.6% YoY, down 0.8% QoQ Price Chart
800 15000 What should investors do? Bandhan Bank has underperformed in the past year as 600 10000
challenges pertaining to asset quality have emerged with the micro loan segment 400 5000 being impacted the most. 200
We retain our HOLD rating on the stock 0 0
Jul-18 Jul-19 Jul-20 Jul-21
Jan-20 Jan-21 Target Price and Valuation: We value Bandhan Bank at ~2.3x FY23E ABV Jan-19 Bandhan Bank NSE500 Index and maintain target price for the stock at | 310 per share. Risk to our call
Reported GNPA spikes to 8.18% from
Key triggers for future price performance: 6.8% QoQ. No loans were written-off
Retail Equity Research Equity Retail
Balance sheet strengthening could keep near term credit cost high during the quarter
– Sharp recovery in collections post unlocking could boost performance Key Risk: Increased impact of Covid-19 may hit collections. Thus, Assam government’s scheme and credit guarantee fund acts as safety net delinquencies may rise
Recent Event & Key risks Alternate Stock Idea: Besides Bandhan, in our coverage we also like CSB Bank. Kajal Gandhi [email protected] CSB Bank has shown meaningful transformation in its overall performance Securities ICICI in the past few years and currently has focus on gold and SME loans Vishal Narnolia [email protected]
BUY with a target price of | 380 Sameer Sawant [email protected]
Key Financial Summary 4 year CAGR 2 year CAGR FY19 FY20 FY21 FY22E FY23E (FY17-FY21) (FY21-23E) NII 4496 6324 7563 33% 9315 11521 23% PPP 3748 5447 6855 55% 7981 9891 20% PAT 1951 3024 2205 46% 3064 4744 47% ABV (|) 92.0 91.9 90.3 105.2 131.9 P/E 17.8 16.1 21.3 15.3 9.9 P/ABV 3.2 3.2 3.2 2.8 2.2 RoE (%) 19.0 22.1 13.5 16.3 21.1 RoA (%) 3.9 3.9 2.1 2.5 3.2
ss Source: Company, ICICI Direct Research ICICI Direct Research Result Update | Bandhan Bank
Key takeaways of recent quarter & conference call highlights Q1FY22 Results: Weak performance amid elevated slippages Healthy NII growth of 16.7% YoY and 20.3% QoQ, driven by a sharp improvement in NIMs as the previous quarter had considerable interest reversals due to NPA recognition and relief of interest on interest C/I ratio declined with restricted business activity but provisions remained elevated at | 1374 crore. PAT came in at | 373 crore in line with estimates Collection efficiency saw a sharp decline from 98% in March to 86% in June as lockdowns from mid-May to mid-July restricted field staff movement EEB loans witnessed a rise in NPA to 9.3% vs. 7.6% QoQ The bank restructured EEB loans worth | 4057 crore and housing loans worth | 604 crore during this quarter
Q1FY22 Earnings Conference call highlights
The 30-90-day overdue book increased from 5.3% to 12.5% Assam government package applied to ~55% of Assam MFI book. Of the | 6350 crore, ~| 3580 crore is eligible for resolution under Assam government’s plan. The bank has availed CGFMU guarantee. which is a central government guarantee given to lenders against payment of guarantee premium for non agri loans. Bandhan Bank has ~| 14300 crore of portfolio covered under the scheme wherein 75% of loss will be borne by guarantee (first 3% of loss to be borne by lender) Slippages in EEB segment came in at | 1336 crore and recoveries at | 510 crore. Total slippages | 1682 crore Also, 84% of total restructured are paying and rest are non-paying ECLGS disbursement in the June quarter is negligible The company added 5 lakh new customers taking total customer base to 2.3 crore
Peer comparison
Exhibit 1: Peer Comparison CMP M Cap EPS (|) P/E (x) P/ABV (x) RoA (%) RoE (%) Sector / Company (|) TP(|) Rating (| Bn) FY21 FY22E FY23E FY21 FY22E FY23E FY21 FY22E FY23E FY21 FY22E FY23E FY21 FY22E FY23E Axis Bank (AXIBAN) 756 900 Buy 2318 25.2 47.7 58.7 30.0 15.9 12.9 2.7 2.3 1.9 0.8 1.3 1.4 8.1 13.8 15.2 City Union (CITUNI) 154 200 Buy 114 8.4 10.0 12.0 18.4 15.3 12.8 2.3 2.0 1.7 1.2 1.3 1.4 11.2 11.9 12.6 DCB Bank (DCB) 103 110 Buy 32 10.8 12.3 15.6 9.5 8.4 6.6 1.1 0.9 0.8 0.9 0.9 1.1 10.2 10.5 11.8 Federal Bank (FEDBAN) 87 100 Buy 174 8.0 9.5 12.0 11.0 9.2 7.2 1.2 1.1 1.0 0.8 0.9 1.0 10.4 11.8 13.4 HDFC Bank (HDFBAN) 1,434 1,800 Buy 7928 56.4 66.4 77.8 25.4 21.6 18.4 4.0 3.6 3.2 1.9 1.9 2.0 16.6 17.0 17.9 IndusInd Bank (INDBA) 975 1,150 Buy 755 36.7 65.1 78.6 26.6 15.0 12.4 1.8 1.6 1.4 0.8 1.3 1.4 7.3 10.8 11.6 Kotak Bank (KOTMAH) 1,740 2,040 Buy 3451 35.1 43.2 51.4 49.5 40.3 33.9 5.6 5.0 4.3 1.8 1.9 2.0 12.4 12.0 13.1 CSB Bank (CSBBAN) 352 380 Buy 61 12.6 18.3 25.5 27.9 19.2 13.8 3.3 2.9 2.4 0.1 1.0 1.2 10.5 13.6 16.4 Bandhan (BANBAN) 291 310 Hold 480 13.7 19.0 29.5 21.3 15.3 9.9 3.2 2.8 2.2 2.1 2.5 3.2 13.5 16.3 21.1 IDFC First (IDFBAN) 51 65 Buy 318 0.8 1.6 2.9 64.3 32.4 17.8 1.8 1.4 1.3 0.3 0.6 0.9 2.7 4.6 7.1
Source: Company, ICICI Direct Research
Bandhan Bank has a distinctive business model backed by a good track record. However, the near term show on asset quality would be keenly watched.
ICICI Securities | Retail Research 2 ICICI Direct Research Result Update | Bandhan Bank
Exhibit 2: Variance Analysis Q1FY22 Q1FY22E Q1FY21 YoY (%) Q4FY21 QoQ (%) Comments
NII 2,114 2,067 1,812 16.7 1,757 20.3 Growth aided by margin improvement
NIM (%) 8.5 7.1 8.2 35 bps 6.8 170 bps NIMs improve due to weak base in previous quarter
Other Income 533 476 387 37.9 787 -32.3
Net Total Income 2,647 2,542 2,198 20.4 2,544 4.1 Staff cost 500 417 389 28.3 426 17.4 Other Operating 277 304 225 23.1 389 -28.9 Opex decline due to lower business activity
PPP 1,871.1 1,821.3 1,584.2 18.1 1,729.5 8.2 Higher stress accretion and balance sheet Provision 1,374.9 1,318.7 849.1 61.9 1,594.3 -13.8 strengthening keeps credit costs elevated PBT 496.2 502.6 735.1 -32.5 135.2 267.1 Tax Outgo 123.1 128.2 185.3 -33.6 32.1 283.1 PAT 373.1 374.5 549.8 -32.1 103.0 262.1 In line with estimates
Key Metrics GNPA 6,440 5,714 1,007 539.8 5,758 11.9 EEB segment sees weakness NNPA 2,458 2,857 336 632.0 2,861 -14.1 Advances 74,766 87,910 74,330 0.6 81,613 -8.4 Business activity marred by lockdowns
Deposits 77,336 81,871 60,602 27.6 77,972 -0.8
Source: Company, ICICI Direct Research Exhibit 3: Change in estimates FY22E FY23E (| Crore) Old New % Change Old New % Change Net Interest Income 9,974 9,315 -6.6 12,234.4 11,521 -5.8 Pre Provision Profit 7,835 7,981 1.9 10,286.4 9,891 -3.8 NIM (%) 8.0 7.7 -37 bps 8.1 8.1 -8 bps PAT 3,647 3,064 -16.0 5,419.3 4,744 -12.5
ABV (|) 111.4 105.2 -5.6 143.2 131.9 -7.9
Source: Company, ICICI Direct Research
Exhibit 4: Assumption Current Earlier FY20 FY21 FY22E FY23E FY21 FY22E FY23E Credit growth (%) 68.1 22.5 18.9 23.0 22.5 22.2 23.0 Deposit Growth (%) 32.0 36.6 25.5 27.2 36.6 27.2 27.2 CASA ratio (%) 36.8 43.4 43.6 43.2 43.4 43.0 42.6 NIM Calculated (%) 8.7 7.4 7.7 8.1 7.4 8.0 8.1 Cost to income ratio (%) 32.2 29.1 30.5 29.1 29.1 34.0 29.0 GNPA (| crore) 992.8 5,757.8 6,616.2 7,145.6 5,757.8 6,043.9 6,396.9 NNPA (| crore) 389.4 2,861.0 3,278.1 3,452.8 2,861.0 2,851.3 2,900.2 Slippage ratio (%) 1,040.5 6,887.8 2,861.5 2,647.2 6,887.8 572.3 705.9
Credit cost (%) 2.3 4.9 4.0 3.0 4.9 3.0 2.5 Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 3 ICICI Direct Research Result Update | Bandhan Bank
Financial summary
Exhibit 5: Profit and loss statement | crore Exhibit 6: Key Ratios (| Crore) FY19 FY20 FY21 FY22E FY23E (Year-end March) FY19 FY20 FY21 FY22E FY23E Interest Earned 6644.1 10885.5 12524.2 15454.9 18894.1 Valuation Interest Expended 2148.4 4561.6 4960.9 6139.5 7373.4 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 9,315.4 11,520.7 EPS (|) 16.4 18.1 13.7 19.0 29.5 growth (%) 87.0 40.7 19.6 23.2 23.7 BV (|) 93.9 94.4 108.1 125.5 153.4 Non Interest Income 1063.4 1549.2 2109.1 2164.3 2424.5 ABV (|) 92.0 91.9 90.3 105.2 131.9 Operating Income 5559.1 7873.1 9672.4 11479.7 13945.2 P/E 17.8 16.1 21.3 15.3 9.9 P/BV 3.1 3.1 2.7 2.3 1.9 Staff cost 1008.7 1367.0 1664.6 2031.9 2304.2 P/ABV 3.2 3.2 3.2 2.8 2.2 Other Operating expense 802.2 1059.5 1152.5 1466.4 1750.4 Yields & Margins (%) Operating profit 3748.1 5446.5 6855.2 7981.4 9890.6 Net Interest Margins 9.1 8.7 7.4 7.7 8.1 Provisions 735.1 1393.2 3906.6 3884.7 3547.7 Yields on Loans 15.4 17.0 14.1 14.2 14.4 Exceptional items 0.0 0.0 0.0 0.0 0.0 Cost of funds 5.5 5.8 5.2 5.6 5.6 PBT 3013.0 4053.4 2948.6 4096.7 6342.9 Quality and Efficiency (%) Taxes 1061.6 1029.7 743.2 1032.6 1598.7 Cost to income ratio 32.6 32.2 29.1 30.5 29.1 Net Profit 1951.5 3023.7 2205.4 3064.1 4744.2 GNPA 2.1 1.5 7.1 6.8 6.0 EPS (|) 16.4 18.1 13.7 19.0 29.5
NNPA 0.6 0.6 3.5 3.4 2.9 Source: Company, ICICI Direct Research ROE 19.0 22.1 13.5 16.3 21.1
ROA 3.9 3.9 2.1 2.5 3.2
Source: Company, ICICI Direct Research
Exhibit 7: Balance sheet | crore Exhibit 8: 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 17.3 22.6 Capital 1193 1610 1611 1611 1611 Advances 33.4 68.1 22.5 18.9 23.0 Reserves and Surplus 10009 13585 15798 18604 23091 Deposit 27.6 32.0 36.6 25.5 27.2 Networth 11202 15195 17408 20215 24701 Total Income 97.5 41.6 22.9 18.7 21.5 Deposits 43232 57082 77972 97822 124402 Net interest income 87.0 40.7 19.6 23.2 23.7 Borrowings 521 16379 16960 13568 12211 Operating expenses 16.5 2.1 -7.1 -5.4 -6.5 Other Liabilities & Provisions 1487 3062 2652 3315 4144 Operating profit 219.7 45.3 25.9 16.4 23.9 Total 56442 91718 114993 134920 165459 Net profit 296.9 54.9 -27.1 38.9 54.8 Net worth 19.4 35.7 14.6 16.1 22.2 EPS 61.1 10.6 (24.3) 38.9 54.8
Applications of Funds Fixed Assets 331 369 487 584 701 Source: Company, ICICI Direct Research Investments 10038 15352 25156 27671 30438 Advances 39643 66630 81613 97054 119333 Other Assets 6430 9367 7738 9611 14987 Total 56442 91718 114993 134920 165459
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 4 ICICI Direct Research Result Update | Bandhan Bank
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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 5 ICICI Direct Research Result Update | Bandhan Bank
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