Bandhan Bank’s market price dips 10% in a week; Shares trading at 11-month low

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Bandhan Bank shares were quoting lower for the fifth straight day, down 1.6 per cent at Rs 262.60 on the BSE in intra-day trade on Tuesday in an otherwise firm market. With this, the stock was trading at its lowest level since September 2020. Meanwhile, the S&P BSE Sensex was up 0.79 per cent at 55,997 points at 02:24 pm.
In the past week, the market price of Bandhan Bank has declined 10 per cent, as compared to a 0.28 per cent rise in the S&P BSE Sensex. In the April-June quarter (Q1FY22), Bandhan Bank’s assets under management (AUM) grew at a lower-than-expected rate of 8 per cent year-on-year (YoY) (down 8 per cent sequentially) as disbursements were lower across business segments and the bank did not resort to many disbursements in ECGLS/top-up loans, unlike last year.
According to analysts at Emkay Global Financial Services, the microfinance institutions (MFI) business is inherently prone to disruptions – be it political or natural. As a result, the bank needs to accelerate its asset-diversification strategy. Factoring in lower growth/higher LLP due to the Covid-led disruption, the brokerage cut its FY22-24E EPS by 12-5 per cent. Higher-than-expected NPA formation, including lower recovery from the Assam portfolio, and unsettling of growth momentum due to a potential 3rd Covid wave are among key risks to brokerage estimates.
“Bandhan Bank reported a higher-than-estimated profit after tax in Q1FY22, supported by margin expansion. This was despite elevated slippages/provisions due to the second Covid wave (which severely impacted the MFI sector) and the disturbance in credit culture due to loan waivers,” analysts at Motilal Oswal Securities said.
Overall, asset quality remains uncertain as the pool of restructured/SMA overdue remains high. Thus, the brokerage firm estimates credit cost to remain elevated at 5.5 per cent of loans for FY22 (similar to FY21 levels).  With a present business size of around Rs 1.50 trillion, the bank aims to have a well-diversified asset portfolio, the optimum mix of secured and unsecured assets, and geographically diversified.
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