Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities
BANDHAN's 3QFY21E PAT disappointed on account of higher-than- anticipated provisions as it sought to insulate the balance sheet from stress emanating from its Assam portfolio. We will continue to closely track progress on this front, and we have reduced our earnings estimates to account for this. Low-cost deposit traction remains impressive in its granularity - this along with BANDHAN's strong RoAE potential underpin our stance. Maintain BUY with a target price of Rs 406.
Worrisome trends surface: While EEB (micro-credit) collection efficiencies (CE) remained stable until December at ~92%, they have deteriorated significantly since. This trend has been led by BANDHAN's Assam portfolio, in the case of which, below average CE (88% in December) plummeted to 78% in the first fortnight of January. Pro forma NPAs jumped to ~7.2%, however, in this calculation, the bank appears to have included part payment cases. Unsurprisingly, ~95% of the incremental stress is emanating from the bank's Assam portfolio. BANDHAN's prospects are now, more than ever, hinged upon its eastern/ north-eastern portfolio. We have raised our FY21E GNPA estimates to 5.8%.
Prudent provisioning build-up for potential event risk: BANDHAN stepped up the balance sheet insulation process, in anticipation of stress, building an additional ~Rs 10bn of provisions. This takes aggregate stock of COVID-19 related provisions to Rs 31.2bn (~4.1% of total advances). Further, pro forma net NPAs stood at ~2.4%. The management raised its credit cost guidance to ~4.5% for FY21E. We conservatively build in ~5% (vs. 3.2% earlier) and we have raised our cumulative credit costs over FY22-23E by 106bps to 2.1% ann.
Individual loans lead EEB growth: The EEB segment continued to see strong growth at 32.3/6.6% and constitutes 66.1% of overall AUMs. Growth within this space, in turn, was led by a ~8x growth in individual loans, which now form ~10% of overall EEB loans.
Shares of Bandhan Bank Ltd was last trading in BSE at Rs.314.2 as compared to the previous close of Rs. 341.05. The total number of shares traded during the day was 2546415 in over 81225 trades.
The stock hit an intraday high of Rs. 335.9 and intraday low of 312. The net turnover during the day was Rs. 818545435.