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Business News/ Markets / Stock Markets/  Bandhan Bank share price declines over 3%; what should investors do with this stock?

Bandhan Bank share price declines over 3%; what should investors do with this stock?

Bandhan Bank's share price declined over 3 per cent as investors assessed the growth potential of the stock following its weak Q1FY24 results. Brokerage firms have cut their estimates for the stock and do not expect significant upside potential.

Bandhan Bank missed Street estimates for Q1FY24. (Agencies)Premium
Bandhan Bank missed Street estimates for Q1FY24. (Agencies)

Bandhan Bank share price declined over 3 per cent in early deals on Monday (July 17) following a decent gain in the previous session as investors reckoned the growth potential of the stock post its April-June quarter (Q1FY24) scorecard.

The company released its Q1FY24 results post-market hours on July 14. The stock rose almost 3 per cent in the next session but in the following session today, the stock opened over 2 per cent lower at 217.05 against the previous close of 221.75 and soon slipped 3.20 per cent to the level of 214.65.

The stock hit its 52-week high of 314.75 on September 15, 2022, and its 52-week low of 182.20 on March 28, 2023.

Bandhan Bank Q1FY24 results

Bandhan Bank disappointed Street by reporting weak numbers. It missed estimates for Q1FY24 in terms of bottom-line and net interest income (NII). Profit after tax (PAT) declined by 18.66 per cent year-on-year (YoY) to 721.05 crore while NII stood at 2,490.8 crore in the same quarter.

The bank's loan portfolio (on book + off book + TLTRO + PTC) grew 6.7 per cent YoY at 1.03 lakh crore. Its deposits grew 16.6 per cent YoY at 1.08 Lakh crore.

As on June 30, 2023, GNPA improved to 6.76 per cent against 7.25 per cent YoY while net NPAs stood at 2.18 per cent against 1.92 per cent YoY.

Read more: Bandhan Bank Q1 results: PAT falls by 19% YoY to 721 crore, misses estimates; asset quality improves

Brokerages' Views on Bandhan Bank

Many brokerage firms have cut their estimates for the stock after its weak June quarter earnings. Some of them have suggested accumulating the stock but they do not expect a significant upside potential in the stock.

Brokerage firm Motilal Oswal Financial Services maintained a 'neutral' call on the stock with a target price of 240.

"Bandhan Bank reported a disappointing Q1FY24, with a 19 per cent YoY decline in PAT due to higher slippages and a 28 per cent YoY increase in other expenses. ‘Other income’ declined quarter-on-quarter (QoQ); therefore, C/I (cost-to-income ratio)spiked to 45.7 per cent during the quarter," said Motilal Oswal.

"We remain watchful of asset quality and the high SMA (special mention accounts) book despite the recoveries expected from CGFMU (Credit Guarantee Fund for Micro Units) and ECLGS (Emergency Credit Line Guarantee Scheme) in FY24. Hence, we reduce our estimates for PAT by 5 per cent and PPoP (pre-provision operating profit) by 3 per cent for FY24 and FY25 each. We estimate an RoA (return on assets) of 2.3 per cent and RoE (return on equity) of nearly 20 per cent in FY25 and reiterate our neutral stance with a target price of 240 (premised on 1.6 times FY25E ABV)," Motilal Oswal said.

On the other hand, brokerage firm Nirmal Bang Equities has downgraded its ratings from a 'buy' to an 'accumulate' on the stock and reduced the target price to 247, implying an 11 per cent upside.

After incorporating the weaker performance of Q1FY24, our conservative estimates of loan growth at a CAGR of 17.5 per cent over FY23-FY25E and elevated opex ratio over near to medium term (due to continued physical expansion and lower revenue growth in the first half of FY24), we have cut our earnings estimates for FY24E and FY25E by 8.3 per cent and 8.6 per cent, respectively," Nirmal Bang said.

The brokerage firm underscored that although return ratios would expand with normalisation in credit costs, regaining loan growth momentum is key for the bank.

"While we are hopeful of a rebound towards double-digit growth in the second half of FY24 as guided, in the near term, the CBS (core banking solution) upgrade in one or two phases could lead to temporary disruptions for a couple of weeks in terms of growth and asset quality. Another area to pay attention to is the faster rise in deposit growth, especially high-cost term deposits versus loan growth, which was flat on a YoY basis and could compress the C/D ratio (credit-deposit ratio) in the near term. Therefore, improvement in the CASA ratio over the remaining part of FY24 and managing a judicious asset mix to maintain or improve yields and NIMs will be crucial," Nirmal Bang said.

Shares of Bandhan Bank traded 1.76 per cent lower at 217.85 around 10:10 am.

Read all market-related news here

Disclaimer: The views and recommendations given in this article are those of the brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 17 Jul 2023, 10:20 AM IST
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