Compared to its benchmark index Nifty Bank, which has been trading at its 52-week high level, shares of Bandhan Bank have underperformed, with the company currently trading around the ₹229 per share level it reached in December of last year.
Due to a steep decrease in net interest margins and increased provisioning, Bandhan Bank reported a subdued second quarter (Q2 FY23) with net profit of just ₹209 crore for the September quarter. Although it had a net loss of ₹3,008 crore the year before, the profit was down from ₹886.5 crore. While its net interest margin (NIM) decreased to 7% from 8% in the June quarter, its net interest income increased 13.3% from the prior year to ₹2,193 crore.
“Augering favourably for the company’s performance in the future include the retail segment’s strong increase in advances and deposits, rising asset quality, uptick in economic activity, and on-going holiday/wedding season. According to stockbroker Geojit, the company is presently trading at good prices, not far from its 52-week low share price. With a revised target price of ₹282 per share, the brokerage firm has upped its recommendation on the bank stock to Buy.
According to HDFC Securities, “Bandhan Bank’s Q2FY23 results fell short of our expectations with a dismal performance on asset quality, impairment recognition on the whole restructured portfolio (slippages at 19.2% annualised), and ensuing accelerated write-offs (17% annualised).
The quarter’s asset quality results and management commentary on increasing vulnerabilities and borrower behaviour in the bank’s main EEB business raise existential concerns about the calibre and viability of the bank’s primary client franchise. In the core EEB portfolio, there have been significant slippages and write-offs, which raise questions about the underlying customer franchise and the bank’s capacity to sustain asset quality and robust profitability, according to the note.
“More significantly, we draw attention to the declining faith in the core customer franchise. With a reduced target price of ₹309 per share, HDFC Securities advised downgrading Bandhan Bank shares from BUY to ADD. “We argue for a substantial deflation in the valuation multiple.
