Neutral Bandhan Bank Ltd for the Target Rs.185 by Motilal Oswal Financial Services Ltd
NII, PPoP in line; high provisions drag down earnings
Margins contract 27bp QoQ
* Bandhan Bank (BANDHAN) reported 1QFY26 PAT at INR3.72b (down 65% YoY, up 17% QoQ), 19% miss due to higher-than-expected provisions.
* NII stood flat QoQ at INR27.6b (down 8% YoY, in line). Margins declined 27bp QoQ to 6.4% (in line).
* Other income grew 38% YoY/3.8% QoQ to INR7.3b (17% miss). Opex declined 4% QoQ to INR18.1b (5% lower than est.).
* Advances declined 2.6% QoQ (up 5.7% YoY), while deposits grew 2.3% QoQ (up 16.1% YoY). CASA mix moderated 400bp QoQ to 27.1%. CD ratio eased to 83% from 87% in 4QFY25.
* GNPA/NNPA ratios increased 25bp/8bp QoQ to 4.96%/1.36%. Fresh slippages declined 11% QoQ to INR15.5b. PCR stood flat at 73.7%.
* We cut our earnings estimates by 9%/7% for FY26/FY27 and expect FY27E RoA/RoE of 1.6%/13.9%. Reiterate Neutral with a TP of INR185 (1.1x FY27E ABV).
Business growth muted; asset quality remains under pressure
* BANDHAN reported 1QFY26 PAT at INR3.72b (down 65% YoY, up 17% QoQ), 19% miss due to higher-than-expected provisions.
* NII stood flat QoQ at INR27.6b (down 8% YoY, in line). Margins declined 27bp QoQ to 6.4%.
* Other income grew 38% YoY/3.8% QoQ to INR7.3b (17% miss). Total revenue thus remained flat sequentially at INR34.8b. Opex declined 4% QoQ (up 14% YoY) to INR18.1b (5% lower than est.). PPoP grew 6.2% QoQ (down 14% YoY) to INR16.7b (in line).
* Gross advances grew 6.4% YoY/down 2.5% QoQ. EEB book declined 15% YoY (down 6.6% QoQ), whereas non-micro credit book rose 27% YoY (flat QoQ). Mix of EEB moderated to 40%.
* Deposits grew 2.3% QoQ (up 16.1% YoY). CASA mix moderated 400bp QoQ to 27.1%.
* Slippages declined 11% QoQ, though were high at INR15.5b (vs. INR17.5b in 4QFY25). GNPA ratio increased 25bp QoQ to 4.96%, while NNPA too rose 8bp QoQ to 1.36%. PCR stood at 73.7%. SMA book increased 50bp QoQ to 3.8%.
Highlights from the management commentary
* NIMs declined to 6.4%, dragged down by loan re-pricing, impact of interest reversals and shift in asset mix in favor of secured loans. NIM contraction was partially offset by CoF (which improved by 19bp QoQ).
* 2H growth will be better for EEB portfolio, and the bank aims to close the year with 5-8% growth in EEB portfolio. Overall portfolio will grow at 15- 17% over the next few years.
* The new book will have NPA of 3.5% vs. 5% in the existing book (priorperiod originated). There is a temporary impact on NPA due to the new guardrails.
* 2Q’s credit cost will be better than that of 1Q, and overall credit cost will improve further in 2H
Valuation and view
BANDHAN reported a broadly in-line quarter, with a miss in net earnings due to higher-than-expected provisions. Margins contracted on expected lines due to rate cuts and will face more impact in the next quarter. Loan growth was suppressed as MFI book declined, with the segment mix reducing to 40%. Deposit growth was higher than advances growth, though CASA ratio moderated further. Asset quality continues to deteriorate; however, slippages saw a slight decline sequentially. NIM is expected to stabilize in 2H as 50% of book is fixed, while slippages are also expected to recede, which will enable improvement in earnings trajectory. We cut our earnings estimates by 9%/7% for FY26/FY27 and estimate FY27E RoA/RoE of 1.6%/13.9%. Reiterate Neutral with a TP of INR185 (1.1x FY27E ABV).
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