Motilal Oswal's research report on Bandhan Bank
Bandhan Bank (BANDHAN) has been taking it on the chin as the bank continuously cleanses its balance sheet with EEB stress pool moderating to INR95b (17.6% of EEB loans) in 2QFY23 from a peak of INR195b (36.1% of EEB loans) in 2QFY22, while its restructured book has dissolved completely. -SMA book though remains elevated, has moderated to 13.1% from a peak of 37.1% in 1QFY22. We note that slippages in 2QFY23 formed ~78% of the SMA book in 1QFY23 and thus we expect slippages to remain elevated over 3QFY23/4QFY23. While the bank is carrying a healthy coverage that includes potential recoveries, any timing mismatch in recoveries may severely impact the credit cost trajectory and keep provisions elevated as a bulk of recoveries is likely over 4QFY23/1QFY24. We note that credit cost in the MFI business tends to demonstrate severe volatility during stressful periods but cycles are generally shorter and earnings recovery is fairly sharp. Over FY20-22, BANDHAN’s RoE plummeted to 0.7% from 23% but we estimate equally quick recovery with RoE’s trending from ~1% to 21% over FY22-24E.
Outlook
We cut our FY23/FY24 PAT estimates by 18%/12% and revise our TP to INR270 (based on 1.9x FY24E BV). Retain Neutral as we await more clarity from its 3QFY23 results even as we believe that post recent ~30% correction, the downside is limited.
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