Neutral Bandhan Bank Ltd For Target Rs.170 by Motilal Oswal Financial Services Ltd
Weak quarter
Transition away from MFI to keep growth, profitability under check
* Bandhan Bank (BANDHAN) reported 3QFY25 PAT at INR4.3b (down 42% YoY, 46% miss).
* NII declined 12% YoY (down 4% QoQ) to INR28.3b (6% miss). Margins moderated sharply by 50bp QoQ to 6.9%. Other income grew 101% YoY/ 84% QoQ to INR10.9b (6% miss).
* Opex grew 34% YoY/ 13% QoQ to INR19b (8% higher than MOSLe). C/I ratio thus increased to 48.5% (up 87bp QoQ).
* Business growth was weak with advances growing 15.6% YoY/1.1% QoQ; deposits up 20.1% YoY/ down 1.1% QoQ. CASA mix dipped 145bp QoQ.
* GNPA ratio stood flat at 4.7%, while NNPA declined 1bp QoQ to 1.3%. Slippages increased to INR16.2b vs. INR11.1b in 2QFY25 due to continued stress in MFI. SMA book increased 50bp QoQ to 3.8%.
* We cut our earnings estimates sharply by 10%/8.5% for FY25/FY26 and expect FY26E RoA/RoE of 1.7%/14%. Reiterate Neutral with a revised TP of INR170 (premised on 1.0x Sep’26E ABV).
Business growth weak; margins decline sharply by 50bp QoQ
* BANDHAN reported 3QFY25 PAT of INR4.3b (down 42% YoY, 54% QoQ, sharp miss of 46%), as the bank missed our estimates on all parameters. In 9MFY25, earnings grew 12% YoY to INR24b, and we estimate 4QFY25 earnings to grow 15x YoY to INR8.6b as the bank took high provisions in 4QFY24.
* NII grew 12% YoY to INR28.3b (6% miss). Margins moderated sharply by 50bp QoQ to 6.9% as the bank is reducing its MFI book and is transitioning toward secured book.
* Other income grew 101% YoY/84.3% QoQ to INR10.9b (6% miss), resulting in 27.9% YoY growth in total revenue to INR39.2b (6% miss). Opex grew 34% YoY/13% QoQ to INR19b (8% high). PPoP thus grew 22.1% YoY/9% QoQ to INR20.2b (16% miss).
* Gross advances grew 13.9% YoY/1% QoQ. EEB book declined 2.6% YoY (down 5% QoQ), while non-micro credit book rose 30% YoY (6% QoQ).
* Deposit grew 20.1% YoY (down 1.1% QoQ). The CASA ratio declined 145bp QoQ to 31.7%.
* GNPA ratio was flat at 4.7%, while NNPA inched down 1bp QoQ to 1.3%. Slippages increased to INR16.2b vs. INR11.1b in 2QFY25 due to stress in MFI. SMA book increased 50bp QoQ to 3.8%. PCR was steady at 73.5%. Collection efficiency for EEB loans was marginally lower at 97.4%.
Highlights from the management commentary
* NIM declined 50bp QoQ to 6.9%, largely due to a change in the secured mix and higher slippages. On 9MFY25, it was ~7.3% (within the guided range of 7-7.5%).
* Provisions stood at INR13.76b, including one-offs of INR3.36b for write-offs and INR0.3b for non-banking assets.
* Slippages stood at INR16.21b – increase was led by EEB book amounting to INR11.96b vs. INR7.52b in previous quarter.
* Out of the total EEB portfolio of INR560b, INR7.4b (group lending is INR4b) pertains to Karnataka. It is not a major concern for the bank. The legislation is targeted toward unregistered RE.
Valuation and view
BANDHAN reported a weak quarter with as margins contracted sharply, business remains subdued while provisions continue to remain elevated. The bank suggested for a continued decline in mix of MFI loans as management de-risks the loan book to deliver sustainable performance. We thus expect business growth to remain modest while reduction in the mix of unsecured/MFI loans will adversely impact margins. Deposit growth was weak alongside slower advances growth. Asset quality deteriorated as slippages continue to rise by 46% QoQ amid rise in stress in MFI book. We cut our earnings estimates by 10%/ 8.5% for FY25/ FY26 and expect FY26E RoA/RoE of 1.7%/14%. Reiterate Neutral with a revised TP of INR170 (premised on 1.0x Sep’26E ABV).
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
