Buy Bandhan Bank Ltd for the Target 240 by Emkay Global Financial Services Ltd
Bandhan Bank reported a steady PAT of Rs5.0bn (ROA: 1.0%), with higher NII and lower provisions offsetting the impact of lower other income and elevated opex. However, core operating profit remained subdued, declining to 5.9% yoy/7.0% qoq. AUM growth remained healthy at 16.4% yoy/ flat qoq, driven primarily by the non-MFI segment, while the MFI portfolio remained muted (- 0.3% yoy/-2.4% qoq). NIM was stable at 6.2% in 1QFY27; however, the management expects some moderation going forward, as rising deposit and funding costs are likely to limit further margin expansion from 2QFY27 onwards. The management reiterated its FY27 credit growth guidance of ~14%, with EEB growth targeted at 5–10% and non-EEB growth at +20%. However, citing external headwinds, the bank revised its ROA outlook to 1.2-1.4%—a ~40bps impact vs earlier guidance, with ~30bps attributable to lower NIMs and ~10bps to higher opex. We expect the bank to deliver an ROA of 1.0-1.5% over FY27-29E, up from a low of 0.6% in FY26 dragged by portfolio clean-up. Thus, we retain BUY and raise our TP by 9% to Rs240 (from Rs220), valuing the bank at 1.2x Jun-28E ABV, factoring in the improving growth and ROA trajectory.
Growth recovery; margin to remain under pressure going ahead
Bandhan reported AUM growth of 16.4% yoy/0.9% qoq, led by the non-MFI segment, while the MFI portfolio remained subdued (-0.3% yoy/-2.4% qoq). The management expects the MFI segment to remain impacted by external headwinds and thus continues to pursue a calibrated growth strategy rather than aggressive expansion. However, the bank reiterated its FY27 credit growth guidance of ~14%, with EEB growth of 5–10% and non-EEB growth at +20%. NIM was stable at 6.2%; however, the management expects some moderation going forward, as rising deposit (SA costs already up ~20- 25bps) and funding costs are likely to limit further margin expansion from 2QFY27.
Higher recoveries and write-offs drove improvement in GNPA
Gross slippages stayed elevated at Rs10.8bn/3.4% of loans (of which Rs6.04bn was from the EEB portfolio) but, aided by higher recoveries and write-offs, GNPA improved 12bps to 3.15%. Further, the overall DPD pool increased marginally to 3.5% from 3.1% qoq, primarily due to a seasonal rise in the SMA-0 bucket following holiday-related disruptions in April. The management expects the increase to be temporary and will continue to monitor the trend closely. Accordingly, the management has retained its credit cost guidance of 1.6–1.8% by FY27, despite near-term uncertainties
We retain BUY
We estimate the bank to deliver a 1.0-1.5% ROA over FY27-29E, up from a FY26 low of 0.6% (dragged by portfolio clean-up). Thus, we retain BUY and raise our TP by 9% to Rs240, valuing the bank at 1.2x Jun-28E ABV, factoring in improving growth and ROA trajectory. Key risks: Slower-than-expected growth and a delay in asset-quality recovery, and the El-Nino effect.
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