Bandhan Bank surges 8% on improvement in asset quality in March quarter

Shares of Bandhan Bank surged 8 per cent to Rs 342.70 on the BSE in Monday’s intra-day trade, on improvement in asset quality in the March quarter (Q4FY22), with gross non-performing asset (NPA) and net NPA ratios declining 435 bps and 135 bps to 6.46 per cent and 3.01 per cent, respectively, on a quarter on quarter (QoQ) basis.

At 11:29 am; the stock of the private sector lender was trading 6 per cent higher at Rs 336.90, as compared to a 0.72 per cent rise in the S&P BSE Sensex. It had hit a 52-week high of Rs 354.10 on June 28, 2021.

In Q4, Bandhan Bank reported healthy improvement in its operating performance with net interest income (NII) growing 44.6 per cent year on year (YoY) and 19.5 per cent QoQ to Rs 2,540 crore.

The bank’s net profit soared to Rs 1,902 crore compared to Rs 103 crore in the same period a year ago, aided by low provisions and higher net interest income (NII). In the previous quarter, it had posted a net profit of Rs 859 crore.

Net interest margin (NIM), a measure of profitability, increased to 8.7 per cent in the current quarter from 7.8 per cent in the preceding quarter. Provisions were mere at Rs 4.7 crore vs. Rs 805 crore QoQ and Rs 828 crore YoY due to sharp recovery in asset quality.

However, in the past three years, Bandhan Bank has underperformed the market by falling 40 per cent, as compared to a 42 per cent rally in the Sensex.

Underperformance in the stock price over the past year was on account of uncertainties over asset quality. Although, analysts at ICICI Securities believe that a substantial improvement in asset quality along with better outlook should reflect positively.

Healthy loan growth guidance with target of improving proportion of secured book remains positive. Sharp improvement in asset quality to benefit all other parameters; materialisation of estimated recoveries of around Rs 5,000 crore remains key. Benefits of rate hike in Emerging Entrepreneurs Business (EEB) to be fully witnessed from this year onwards. Hence, NIMs could see some improvement and, thus, boost income, the brokerage said in its result update.

“Bandhan Bank has reported a strong all-round performance, with an improvement in collection efficiency aiding a sharp improvement in asset quality, while business growth has gathered pace. The management has guided at a continued improvement in asset quality and steady trends in loan growth. We raise our FY23/FY24 earnings sharply by 23 per cent/17 per cent, factoring in lower credit cost and a recovery in growth,” said Motilal Oswal Financial Services.

The brokerage has maintained its neutral rating on the stock with an increased target price of Rs 350 per share (based on 2.2x FY24E BV).