Buy Bandhan Bank Ltd For Target Rs 220 By Emkay Global Financial Services Ltd
Bandhan Bank has seen steady improvement in performance, with credit growth at 12.6% YoY and margins increasing 30bps QoQ to 6.2%, driven by a lower CoF and reduced interest reversals. This, coupled with lower provisions, led to an 11% PAT beat at Rs5.3bn, with RoA at 0.7%. As per the management, MFI collections in West Bengal and Assam have steadily improved, but they still need to be closely monitored given the ongoing elections and the potential impact of El-Nino. Going ahead, the management expects credit growth to improve further unless being hurt by macro-disruption, which, coupled with improved fee growth and lower credit costs (1.6-1.7% down from 2.6%), should drive up RoAs. We expect the bank to deliver an RoA of 1.3-1.7% over FY27-29E, up from a low of 0.6% in FY26 dragged by portfolio clean-up. Thus, we retain BUY and raise the TP by 22% to Rs220 (from Rs 180), valuing the bank at 1.2x FY28E ABV, factoring in the improving growth and RoA trajectory.
Growth recovery and margin expansion continue in Q4
Bandhan clocked AUM growth of 12.6% YoY/6.2% QoQ, primarily led by the non-MFI segment and recovery in MFI (+7.6% QoQ). Margin improved 30bps QoQ to 6.2%, aided by lower costs and reduced interest reversals. The management expects a further 15– 20bps sequential improvement over the next 2–3 quarters, driven by the repricing of high-cost deposits. Yields remained resilient despite repo cuts, aided by the sale of lowyielding NPA assets and a better loan mix. The management reiterated its FY27 exit aspiration of ~6.0% NIM on total assets (~6.5% on earnings assets) and ROA of 1.6– 1.7% and maintains loan growth guidance of 14-15%.
Stress easing; credit costs guided at 1.6–1.7% by FY27
Gross slippages moderated but remained elevated at ~Rs10.3bn (3.1% of loans), with steady recoveries and write-offs driving a 6bps improvement in GNPA to 3.3%. Further, the overall DPD pool improved from 4.6% to 3.1%, led by a sharp decline in the 0 DPD bucket, with no adverse impact observed so far from elections or weather-related factors, thereby keeping collection efficiency steady. The bank expects ~Rs12.5bn ECL transition impact based on the Dec-25 portfolio, to be amortized over five years (~Rs2.5bn annually), implying ~16–17bps drag on capital ratios. On the unsecured (largely MFI) book, the bank holds Rs10.7bn of standard asset provisions and a Rs1.36bn management overlay, taking provisioning to ~1%, ~35bps above regulatory norms. Accordingly, the management has retained its credit cost guidance of 1.6–1.7% by FY27, despite nearterm uncertainties
We retain BUY
We estimate the bank to deliver 1.3-1.7% RoA over FY27-29E, up from a low of 0.6% in FY26 dragged by portfolio clean-up. Thus, we retain BUY and raise the TP by 22% to Rs220, valuing the bank at 1.2x FY28E ABV, factoring in improving growth and RoA trajectory. Key risks: Slower-than-expected growth and delay in asset-quality recovery, particularly given the elections in its home states of WB and Assam, and El-Nino effect.
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