Bandhan Bank Shares Hit a 3-Year Low; What Investors Should Know

Bandhan Bank Share Price: Shares of Bandhan Bank hit three-year low at Rs 185.45 as they slipped 6 per cent on the BSE in Tuesday’s intra-day trade amid back of heavy volumes. In 3 sessions, the stock has lost more than 14 per cent.

The stock of private sector lender quoted at its lowest level since April 2020. It had hit a record low of Rs 152.35 on March 25, 2020.

The fall in trade today was backed by significant volumes of more than 17 million shares, more than 2 times the 6-month daily average trading volume of over 8 million shares.

In past two months, the stock has tanked 23 per cent after the bank reported a 66.2 per cent year-on-year (YoY) dip in its December quarter (Q3FY23) profit at Rs 290.6 crore, while its net interest income (NII) dropped 2.1 per cent YoY to Rs 2,080.4 crore.

The Bank said, fall in NII was mainly because the higher reversal of interest income and also increase the cost of funds. The Bank’s net interest margin for the quarter was 6.5 per cent compared to the 7 per cent last quarter. During the quarter Bank has sold written off loans Rs 8,897 crore at an aggregate value of Rs 801 crore out of that Rs 387 crore has been issued as Security Receipts.

Last week, the bank said it received a binding bid of Rs 740 crore from an asset reconstruction company for non-performing loans with an outstanding of Rs 4,930 crore.

Its board has given consent to transfer NPAs with an outstanding of Rs 2,614 crore to the ARC.

During the quarter ended December, the bank’s provision surged over 91 per cent on year to Rs 1,541 crore. As a result, net profit dropped 66 per cent to Rs 291 crore.

Bandhan Bank’s gross non-performing asset ratio was 7.15 per cent as of December 31, compared to 7.19 per cent a quarter ago, and 10.81% a year ago.

What Should Investors Do?

According to analysts at KRChoksey Shares and Securities Bandhan reported a subdued financial performance in Q3FY23, owing to slower growth in overall business, impacted NII Income and elevated levels of provisions which took hit on the overall profitability. The credit growth was modest owing to lower growth in its microfinance institution (MFI) segment, it added.

However, on the asset quality front, analysts remain cautious on the MFI stressed asset pool and accordingly kept credit costs slightly at higher levels. “We reduce our estimates for FY24E and have introduced FY25E. We expect CAGR in NII at 16.6 per cent, PPoP at 8.8 per cent, and PAT at 251.2 per cent over FY22-25E,” the brokerage firm said.

In its recent report, Nuvama Institutional Equities said that the earnings and valuation have bottomed out, and one could see them rebounding in FY24 on normalising credit cost, higher NIM, and asset growth.

However, it added that the long-term earnings visibility from the business transformation is low for the bank as it moves away from its core competency to intensely competitive segments.

As a result, the brokerage has a “hold” rating on the stock with a price target of Rs 265.

While the management seemed confident of the ongoing borrower behaviour corrections reflecting in the gradual abating of stress in its core Emerging Entrepreneurs Business (EEB) portfolio, we are cautious about any near-term outcomes from the bank’s hard pivot ahead, analysts at HDFC Securities had said.

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