Bandhan Bank shares up 3.5% post Q3 earnings but caution continues

Reacting to the earnings, the stock rose around 3.5% on the NSE in Monday’s opening trade.

In a post-earnings conference call with analysts, the management highlighted that the bank’s collection efficiency (including non-performing assets) improved to 92% in December 2021 from 86% in September 2021. Excluding non-performing assets, collection efficiency improved to 97% in December 2021, it said. The bank expects growth momentum to be robust in Q4, which is strong quarter for microfinance institutions (MFI). Also, it expects asset quality to further improve.

However, analysts continue to flag some issues which investors in this stock should take a note of.

“Although the repayment trends on the overall stress pool have improved since 2QFY22 and the management has guided for further improvement, the slippages in 3QFY22 were higher than expected. From a stockholder’s point of view, we think the bank needs to first deliver comfort on slippages before focusing on gradually lowering the high stress levels,” analysts at Nirmal Bang Institutional Equities Ltd said in a report on 23 January.

“Gross slippages remained higher at Rs3400 crore/18% of loans, mainly from the MFI book, keeping the gross NPA ratio high at 10.8%. We believe that near-term asset quality pain is inevitable and will keep growth, margins and earnings in check,” analysts at Emkay Global Financial Services Ltd said in a report. “Lower visibility in terms of timeline/quantum from the Assam government’s loan relief scheme remains an irritant,” added the report.

It should be noted that for 9MFY22, Bandhan Bank reported a net loss of Rs1,780 crore. Investors would reckon that in Q2FY22, the bank reported steep loss as its key MFI portfolio was impacted by Covid-led lockdowns and loan relief scheme announced in Assam. So, analysts at both the above mentioned domestic brokerages expect Bandhan Bank to report a loss in FY22.

Though Bandhan Bank’s shares were trading higher after Q3 results, the stock has been a laggard in the past one year. The stock is down around 2% in the last one year, underperforming the Nifty Bank index, which has gained around 20% during the same span.