Kolkata, India — Bandhan Bank's stock saw mixed reactions from top brokerages following its September quarter (Q2) earnings report, which highlighted a significant jump in profit and steady loan growth. Nuvama upgraded its rating on the private sector lender, while Jefferies adjusted its price target downwards.
Strong Q2 Performance and Key Metrics
For the September quarter, Bandhan Bank announced a profit of Rs 6 billion, marking a substantial 456% increase from a low base, slightly exceeding analyst expectations. This robust performance was underpinned by a 15% year-on-year rise in net loans and an 18% increase in operating profit, excluding treasury income. Net interest income grew by 14%, and fee income saw an impressive 29% surge.
Despite these positive indicators, the bank faced challenges with deposit growth, which lagged at 9%. Specifically, CASA (Current Account Savings Account) deposits grew only 4%, and savings deposits experienced a 2% decline as the bank strategically shed some high-cost deposits.
Brokerage Reactions and Target Adjustments
Nuvama upgraded Bandhan Bank's stock to a 'BUY' rating from 'HOLD,' citing the sharp correction in the stock price as an attractive entry point. However, Nuvama trimmed its earnings estimates by 4-6% due to anticipated margin pressures, subsequently reducing its price target to Rs 205 from Rs 235.
Jefferies maintained its 'BUY' rating but lowered its price target to Rs 200 from Rs 240. The global investment bank noted the bank's strong operating profit, though it was partially offset by slightly elevated credit costs. Jefferies also highlighted the need for improved retail deposit growth to sustain loan expansion without impacting net interest margins. The firm adjusted its FY28-FY29 estimates downwards by 3-4% to factor in tighter bancassurance fees and expected credit loss provisions, yet found the stock's valuation attractive at 0.8 times FY28 adjusted price-to-book value after the recent correction.
Elara Capital also retained its 'BUY' rating with a target price of Rs 200, suggesting a potential upside of 29%. Elara described the quarter as decent, emphasizing stable asset quality. The brokerage stressed the importance of sustained, broad-based business growth, particularly in CASA deposits, and expansion in emerging business segments for the bank.
Outlook and Key Concerns
While brokerages largely maintained positive ratings due to stabilizing asset quality, growth in loans, and attractive valuations, they also flagged several areas for close monitoring. These include slower deposit growth, ongoing pressure on CASA deposits and margins, potentially higher credit costs, the impact of expected credit loss provisions, and possible volatility within the microfinance portfolio. The management has denied takeover discussions, but speculation regarding mergers and acquisitions for small- and mid-cap banks, including Bandhan Bank, may continue.