We hosted the CEO of Bandhan Bank for a roadshow within the US. He highlighted that after the Covid ache, enterprise has normalised on disbursements & collections. Diversification of mortgage combine & geography are key targets. In the near-term, whereas Q1 tends to be seasonally weak, floods in Assam can impression enterprise for 3-4 weeks and a few restructured loans can slip however are properly provisioned for. Maintain Buy.
Targeting diversification throughout merchandise and geography: Management highlighted that loan-mix diversification ought to result in geographic diversification and the financial institution is increasing in segments like 2-wheeler loans, gold loans and private loans; share of housing loans can rise marginally from 24% now.
Assam floods can impression enterprise for 3-4 weeks: The floods in Assam (c.9% of MFI loans and c.6% of whole loans) have been worse than previous traits and enterprise there can take 3-4 weeks to normalise. For comparability, the Amphan Cyclone in West Bengal (in 2020) was a lot worse and prompted a couple of 3% credit score price on the state guide. Hence, administration feels that the impression could be absorbed within the guided vary for credit score price of 2-2.5%. Our sensitivity evaluation on Assam suggests {that a} 5ppt. greater credit score price in Assam can drag FY23 earnings down by c.5%.
Seasonal traits and slippages from restructured loans: Q1 tends to be a seasonally weaker quarter with decrease disbursements and assortment effectivity (200-300bps under This autumn). However, steady rainfall ought to assist normalisation of exercise put up harvest & in the course of the festive season. The recoveries from restructured loans are round 60%, which is a tad weaker than our expectations. This can result in greater slippages in Q1/Q2 and curiosity earnings reversal. However, the credit score price impression ought to be manageable because the financial institution is carrying ample buffers for a similar and can also be seeing some recoveries from CGFMU and Assam Govt. waivers. Hence, mgmt reiterated their steering of 2-2.5% credit score prices and goals to attain 25% ROE within the coming years.
Buy maintained: We imagine that whereas seasonal and Assam associated points could have a near-term impression, these could be absorbed into present provision reserves/manageable credit score price ranges. Hence, the financial institution ought to profit from a rebound in earnings/enchancment in lending momentum. Post the latest correction, valuations are enticing at 2.1x one-yr ahead adj. PB and we retain our Buy name with a goal value of Rs 430.
Source: www.financialexpress.com”