Analyst Nook – Bandhan Financial institution: Preserve ‘neutral’ with TP of Rs 330 l Janaseva News

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Preserve ‘neutral’, with revised TP of Rs 330 (2.4x FY23 ABV).

Asset high quality deteriorates; CE stays key monitorable: Bandhan Financial institution reported 1QFY22 PAT of Rs 3.7billion, above our estimate — supported by margin enchancment (170bp QoQ) and decrease provisions v/s MOFSLe– at the same time as MFI loans / whole AUM declined 9%/~8% QoQ. On the legal responsibility entrance, the CASA ratio got here in secure at ~43%, whereas the proportion of retail deposits improved to ~83% (v/s 79% in FY21). Slippage was elevated at Rs 16.8billion (annualised slippage ratio of ~9%), with MFI slippage at ~Rs 10.4billion. Subsequently, the GNPA ratio elevated 137bp QoQ to ~8.2%. Provisions had been elevated, with annualised credit score price at 7.2% of loans. Thus, the availability protection ratio (PCR) improved to ~62% of loans (v/s 50% in FY21). The restructured guide elevated sharply to ~Rs 53billion (6.6% of whole AUM). SMA loans surged to 21%, whereas a big portion of the SMA overdue in Assam was eligible for a reduction bundle. Consequently, LGDs would stay managed. Assortment effectivity (excluding NPAs) within the MFI portfolio stood at 86% (~85% for West Bengal) and stays a key monitorable within the close to time period. Total, asset high quality stays unsure, and we estimate credit score prices to stay elevated at 5.5% of loans for FY22 (just like FY21 ranges). Preserve ‘neutral’, with revised TP of Rs 330 (2.4x FY23 ABV).

Restructured portfolio grows to six.6% of AUM; PCR improves to ~62%: Bandhan Financial institution reported PAT of Rs 3.7billion (v/s estimate of Rs 1.8billion) regardless of elevated provisions of Rs 13.7billion (annualised credit score price at 7.2% of loans). NII development got here in at 17% YoY (4% above estimate) regardless of sequential decline in AUM development (~8% QoQ), supported by 170bp QoQ growth in margins to eight.5%. Different revenue grew 38% YoY, supported by a benign base. PPOP, thus, grew ~18% YoY to Rs 18.7billion (5% beat). AUM declined ~8% QoQ (up 8% YoY) on ~9% QoQ decline within the MFI portfolio and 4% QoQ decline within the housing portfolio. The share of the MFI portfolio stood at ~66% of whole AUM (v/s ~67% in FY21).

On the asset high quality entrance, slippage stood elevated at Rs 16.8billion (annualised slippage ratio of ~9%). Subsequently, the GNPA ratio elevated 137bp QoQ to ~8.2%, whereas the NNPA ratio declined 22bp QoQ to three.29%. Provision protection improved to 61.8% (v/s 50.3% in FY21).

Highlights from administration commentary: Slippage from the MFI portfolio was ~Rs 10.4billion, with recoveries and upgrades of Rs 5.1billion. On the portfolio degree, whole slippage stood at Rs 16.8billion, whereas recoveries and upgrades at ~Rs 10billion. The financial institution has availed CGFMU (a assure from the central govt) on the entire portfolio of Rs 143billion. Nil disbursements had been made in Assam in the course of the quarter. Additionally, there have been nil disbursements underneath the credit score assure scheme.

Valuation and consider: Bandhan Financial institution reported higher-than-estimated PAT, supported by margin growth. This was regardless of elevated slippages/provisions attributable to (a) the second Covid wave (which severely impacted the MFI sector) and (b) the disturbance in credit score tradition attributable to mortgage waivers. Restructuring/SMA overdue within the MFI guide elevated sharply. Provision protection elevated to ~62%. which provides us some consolation. Assortment effectivity within the MFI portfolio stood at 86%, with 85% for West Bengal — nearer to the remainder of India. Total, asset high quality stays unsure because the pool of restructured/SMA overdue stays excessive. Thus, we estimate credit score price to stay elevated at 5.5% of loans for FY22 (just like FY21 ranges). Preserve ‘neutral’, with revised TP of Rs 330 (2.4x FY23 ABV).

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Teja Sirisipalli

#Analyst #Nook #Bandhan #Financial institution #Preserve #impartial #Rs330

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