Bandhan Bank shares drop 4% after analysts cut EPS estimate, target price

JPMorgan assigned an ‘overweight’ rating on Bandhan Bank and slashed the target price to ₹270 per share from ₹320 per share earlier, implying a potential upside of 25% as against 48% projected earlier.

In a note, the investment bank mentioned that the bank’s profit of ₹730 crore and return on equity of 14% for the December quarter were below estimates due to lower other income and higher provisions.

“Gross slippage at 5.2% was Similar to the last quarter, partly driven by CBS upgrade in October 2023,” JPMorgan stated.

The investment bank also slashed the earnings per share for FY24 by 12% and the FY25 estimate by 10%.

However, the report expects an EPS growth of 25% in FY25 and 18% in FY26, taking the return on equity to 17% during the period.

The release of claims under government guarantees would be a key catalyst over the next six months and could drive net non-performing loans to less than 1%.

It also expects the extension of current CEO Chandra Shekhar Ghosh in the first quarter of FY25 to be one of the key catalysts.

Macquarie, another multinational investment bank, assigned a neutral call on Bandhan Bank with a target price of ₹225 per share, implying a potential upside of 4% in the next 12 months.

The brokerage mentioned that while asset quality continues to disappoint, profit after tax missed estimates due to lower other income and higher credit costs.

While return on assets (RoA) was flat at 1.9% sequentially in the December quarter, the Opex/Average Assets ratio stood at 3.7%. “Even post system migration, the management expects Opex Ratios to remain range bound 3.5-3.7% levels,” it stated.

The brokerage mentioned that the management remains confident of recovering the second tranche of the Credit Guarantee Fund for Micro Units (CGMFU) claim, which is encouraging.

Bandhan Bank shares were trading 2.36% lower at ₹211.15 apiece on BSE at 9.31 AM.

Commenting on the results, Chandra Shekhar Ghosh, MD & CEO at Bandhan Bank highlighted that a significant portion of the gross non-performing assets (NPAs), amounting to ₹8,000 crore, is attributed to the Emerging Entrepreneurs Business (EEB) book.

Notably, before the financial year 2021, the gross NPA from the EEB book stood at ₹3,600 crore.

Ghosh expressed optimism about gradually recovering these amounts.

Ghosh also provided insights into the bank's performance, stating that the growth in advances is anticipated to be 18% or more.

The deposit growth has reached 15%, with a robust retention of retail deposits at 71%.

Additionally, the Current and Savings Account (CASA) ratio is 36.1%, indicating a strong deposit-to-growth ratio compared to industry standards.

Highlighting their strategic initiatives, Ghosh mentioned the opening of 500 branches in the past few quarters, contributing to the bank's production.

He concluded by noting that the advanced growth has already reached 18.6%, expressing confidence in maintaining or surpassing this growth trajectory in the current financial year.