Maintain BUY on Bandhan Bank - Improvement across fronts - HDFC Securities

Mr. Darpin Shah, Institutional Research Analyst, HDFC Securities

BANDHAN's earnings were ahead of estimates on account of lower-than- expected provisions (a recurring theme across banks this quarter). The bank fared exceptionally in terms of collection efficiency and deposit traction. We have increased our earnings estimates as we build lower provisions (although they remain elevated, given the inherent risks associated with microfinance- refer to our recent report on the Indian Microfinance sector) and higher growth. Maintain BUY with a target price of Rs 377.

Asset quality and collection trends: BANDHAN's collection efficiency improved significantly, reaching ~95% in October. The core microcredit portfolio saw collection efficiency rise to 91% (95% customers by value made payments, ~80% of customers repaid in full). These trends are heartening. And while the bank saw relatively lower collection efficiency in Assam (~87%), trends were improving MoM. Trends across other segments were not worrisome either. Despite the sharp increase in collection efficiency, we continue to build elevated GNPAs in FY21E at 3.9% (albeit lower vs. our earlier estimates) given the inherently risky nature of microfinance.

Provisions remained elevated YoY (2.7x) at Rs 3.95bn. BANDHAN has made generous COVID-19 related provisions, (Rs 17.4bn- 2.3% of loans and 3.5% of the microcredit portfolio, of which Rs 3bn were made in 2Q). The management continues to estimate the total credit impact of COVID-19 at 3.5% of overall loans. We like the bank's conservative approach towards provisioning. We build in LLPs of 2.3% over FY21-23E.

AUMs (including TLRO investments) grew 19.4/3.1%. Microcredit AUMs grew 27.1/4.8%, led by a 13.8% YoY growth in borrower count and a 12.6/4.8% growth in average outstanding. BANDHAN offers top-up loans to existing borrowers (several other microfinanciers do so too). Developments on this front will be keenly watched, given that BANDHAN's average outstanding per borrower is already highest in the industry.

Shares of Bandhan Bank Ltd was last trading in BSE at Rs.300.85 as compared to the previous close of Rs. 289.25. The total number of shares traded during the day was 689024 in over 10951 trades.

The stock hit an intraday high of Rs. 307.9 and intraday low of 292.85. The net turnover during the day was Rs. 207923133.

Source : Equity Bulls

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