Shares of Bandhan Bank Ltd. soared as much as 13% on Monday, marking the largest single-day gain since July 2020. This surge follows a positive response from analysts to the bank's first-quarter earnings, which surpassed expectations and prompted several brokerages to raise their price targets for the stock.
Key Highlights:
Market Performance and Analyst Insights:
Despite a 12% correction in 2024 and a 5% decline over the past 12 months, Kotak Institutional Equities believes the risk-reward ratio for Bandhan Bank shares is favorable at the current market price.
Kotak highlighted that Bandhan Bank reported a robust 45% year-on-year earnings growth, driven by a 25% year-on-year increase in operating profit and a 15% year-on-year reduction in provisions. The bank’s slippages stood at 2.9%, while credit costs were at 1.7%.
Kotak also noted that although early warning signals have increased for Bandhan Bank, they remain lower compared to its peers. The bank revised its risk-weighted assets (RWA) for its microfinance institution (MFI) portfolio, aligning it with unsecured loans. This adjustment led to a quarter-over-quarter reduction of 300 basis points, bringing the RWA down to 14%.
JPMorgan praised the bank's performance, noting that the numbers exceeded expectations due to higher non-interest income and lower provisions. Bandhan Bank’s net interest income (NII) and pre-provision operating profit (PPOP) rose 21% and 24% year-on-year, respectively. The bank's assets under management (AUM) grew by 22%, and non-interest income increased by 37% year-on-year.
The growth in non-interest income was supported by the release of provisions from Security Receipts (SR) redemption and recovery from written-off accounts. JPMorgan also highlighted the bank's better-than-expected asset quality performance in a typically weaker quarter, with overall gross slippages falling below 3% for the first time in 14 quarters.
CLSA had entered Bandhan Bank's results with muted expectations due to the elevated slippage trend and stress in the MFI environment. However, they were positively surprised as net slippages declined by 50% year-on-year, and credit costs dropped to 1.7% from 2.4%. CLSA raised its profit estimates by 5-7%, driven largely by 20 basis points lower credit costs.
Future Outlook:
Bandhan Bank’s management continues to maintain its 18-20% loan growth target for the year, largely expected in the second half. The bank’s net interest margin (NIM) remained stable, and operating expenses were in line with expectations.
Conclusion:
The strong performance and positive analyst outlook have significantly boosted investor confidence in Bandhan Bank. As of the latest trading session, the bank's shares were up 10.55% at ₹212.80 apiece on the NSE. With multiple brokerages seeing a favorable risk-reward ratio, Bandhan Bank is positioned for potential growth in the coming quarters.
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