Bandhan Bank's March-quarter earnings have drawn a split verdict from brokerages, with a sharp drop in credit costs and improving loan growth signalling optimism, but questions lingering over whether the recovery can fully hold.
Macquarie has maintained its 'underperform' rating on Bandhan Bank with a target price of Rs 130. With the stock at Rs 178, the target price implies a downside of about 27%. Investec, meanwhile, has maintained its 'hold' rating and raised its target price to Rs 180 from Rs 165, indicating a modest upside of about 1.1%.
Macquarie on Bandhan Bank
The brokerage said the bank's fourth-quarter performance beat estimates, helped mainly by lower credit costs and stronger non-interest income. Profit after tax rose 68% year-on-year to Rs 5.3 billion, while return on assets improved to 1.1%. Macquarie said slippages in the microfinance business moderated, while early stress indicators such as SMA-0 and SMA-1 also improved, easing concerns over future loan stress.
Loan growth was stronger than expected at 6% quarter-on-quarter, led by an 8% rise in microfinance loans and a 17% jump in retail assets. The brokerage noted that the net interest margin is set to be expanded by around 30 basis points, aided by lower borrowing costs and better yields.
However, Macquarie remains cautious. It noted that Bandhan's full-year return on assets is still only 0.6%, below its sustainable expectation of 1.2%, and said the bank needs to deliver consistently before any meaningful re-rating can happen.
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Investec on Bandhan Bank
Investec said lower credit costs drove the earnings beat and pushed fourth-quarter return on assets to 1.05%. The brokerage pointed out healthy loan growth, improving deposit mix, stable asset quality and better collections in the microfinance portfolio. However, it remains measured, expecting a gradual improvement rather than a sharp turnaround. The brokerage said management's guidance of stronger loan growth, improving deposits and credit costs moving closer to normalised levels by FY27 supports the outlook, but a sharper re-rating may need more consistent execution over the coming quarters.
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