Bandhan Bank tanks 7% as analysts cut FY23 EPS estimates by up to 40%

Shares of Bandhan Bank took a beating, falling over 7 per cent in Monday’s trade after a sharp rise in September quarter slippages triggered an up to 40 per cent drop in FY23 earnings per share (EPS) estimates for the private lender.

Analysts noted that slippage for Bandhan Bank were at an all-time high of 21 per cent. The bank wrote-off Rs 3,500 crore or 4 per cent of loans, its second largest write-off after 2 per cent of loans in Q4FY21.

“Despite a tedious slippage situation, the SMA pool remains unchanged sequentially, implying high slippage even in Q3FY23,” said Nuvama Institutional Equities, which has cut its EPS estimate for Bandhan Bank by 40 per cent for FY23 and 19 per cent for FY24.

“We cut target multiple sharply to 1.8 times from 2.2 times to reflect the high frequency of weak business cycles. We downgrade from ‘BUY’ to ‘HOLD’ despite the stock’s recent underperformance and cut target price to Rs 280 from Rs 370,” the brokerage said.

The scrip fell 7.20 per cent to hit a low of Rs 246.10 on BSE. 

Motilal Oswal said it remains watchful of asset quality and the high SMA book, which can keep credit cost elevated. The management has raised its credit cost guidance for FY23 to 3 per cent from 2.5 per cent earlier and guided at lower than trend growth due to tighter underwriting. Motilal Oswal has cut its FY23 EPS earnings estimate by 18 per cent and FY24 estimate by 11 per cent.

Kotak Institutional Equities has cut its fair value on the stock to Rs 300 from Rs360 earlier as it values the stock  at 2.2 times book value and 9 times June 2024E EPS.

The brokerage said it has cut its estimates sharply to reflect weaker revenue growth and higher provisions.

The scrip has fallen 27 per cent in the last six months and Kotak said investors’ lack of conviction is reflected in the stock’s underperformance in recent quarters.

“Our positive rating essentially is a play that the asset quality would recover, the deposit franchise is strong despite these challenges and the high RoE would be eventually get reflected in higher multiples. However, timing this recovery has not been easy,” it said.

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