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JPMorgan cuts Bandhan Bank shares PT, awaiting new leadership's strategy

Published 2024/10/28, 15:58
BANH
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On Monday, JPMorgan updated its assessment of Bandhan Bank Ltd. (BANDHAN:IN), reducing its price target to INR250 from INR260, while still affirming an Overweight rating on the stock. The adjustment follows the bank's second-quarter performance, which showed a profit after tax (PAT) of Rs 9.4 billion and a return on equity (ROE) of 16%, falling slightly short of JPMorgan's estimates by 7% due to higher provisions.

Bandhan Bank reported year-over-year increases in net interest income (NII) and pre-provision operating profit (PPOP) by 21% and 17% respectively. The bank's assets under management (AUM) grew by 21% compared to the previous year, and net interest margins (NIMs) were also up year-over-year.

However, there was a sequential decrease in NIMs by 20 basis points quarter-over-quarter, attributed to higher slippages that led to reversals and a reduced share of unsecured loans.

The bank experienced a rise in slippages, with overall gross and net slippage rates at 3.5% and 2.6% quarter-over-quarter, respectively. This increase indicates a potential for higher credit costs in the third quarter.

Despite the challenges, including a decline in the microfinance institution (MFI) segment, Bandhan Bank has managed to maintain its return on assets (ROA) at 2.1% and ROE at 16%, with a strong 21% year-over-year AUM growth.

Deposit growth was notably robust, up by 27% year-over-year, and the bank saw a significant decrease in borrowings, leading to an improvement in the credit-to-deposit (CD) ratio to below 90% (88.5%) for the first time since the 2019 Gruh merger. The firm noted that with the recent clarity on guarantee claims and the appointment of a new CEO, the focus would shift to the bank's strategy under new leadership.

While recognizing the bank's low price-to-earnings (PE) ratio at 6x for FY26 and projected ROEs of 17%, the report suggests that near-term pressures on the MFI segment could keep the stock's performance range-bound.

InvestingPro Insights

Bandhan Bank's recent performance, as highlighted in JPMorgan's analysis, aligns with several key metrics and insights from InvestingPro. The bank's market capitalization stands at $3.53 billion, reflecting its significant presence in the banking sector.

InvestingPro Data shows that Bandhan Bank's revenue growth has been impressive, with an 18.22% increase over the last twelve months and a notable 25.1% growth in the most recent quarter. This robust growth supports JPMorgan's observation of the bank's 21% year-over-year increase in assets under management (AUM).

The bank's price-to-earnings (P/E) ratio of 10.6, as reported by InvestingPro, is slightly higher than the 6x PE ratio for FY26 mentioned in the article. This difference suggests that the market may be pricing in some of the growth potential that JPMorgan has identified.

InvestingPro Tips indicate that Bandhan Bank is expected to see net income growth this year, which aligns with the bank's reported profit after tax of Rs 9.4 billion. Additionally, analysts anticipate sales growth in the current year, supporting the positive outlook on the bank's revenue trajectory.

It's worth noting that InvestingPro offers 11 additional tips for Bandhan Bank, providing investors with a more comprehensive analysis of the company's financial health and market position.

While the article mentions challenges in the microfinance institution (MFI) segment, InvestingPro Tips highlight that the bank has been profitable over the last twelve months. This profitability, combined with the expected growth, may help offset some of the near-term pressures discussed in the JPMorgan report.

For investors seeking a deeper understanding of Bandhan Bank's financial position and future prospects, exploring the full range of InvestingPro Tips could provide valuable insights to complement the analysis presented in this article.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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