Brokerages wary of Bandhan Bank’s rising provisions, yet upbeat on audit resolution and cost guidance

Bandhan Bank's shares are expected to be in the spotlight on Tuesday (May 21) following a significant decline in Q4 earnings. The bank's performance has prompted analysts to reassess their positions, highlighting concerns around provisioning, loan write-offs, and management transitions.

Kotak Institutional Equities has maintained a 'Buy' rating with a target price of ₹250 per share.

The brokerage noted that the steep decline was mainly due to higher provisions.

Bandhan Bank reported a 141% year-on-year (YoY) and 159% quarter-on-quarter (QoQ) increase in provisions in the fourth quarter of FY24.

The absence of fresh updates on the Managing Director (MD) and CEO change, along with the status of the Credit Guarantee Fund for Micro Units (CGFMU) audit, are also noted as key concerns.

However, Kotak Institutional Equities believes the outcome of the audit will have limited impact moving forward.

Goldman Sachs adopted a 'Neutral' stance with a target price of ₹203 per share.

The firm acknowledged that the Q4 Pre-Provision Operating Profit (PPoP) was largely in line with expectations, barring some one-offs.

The brokerage also said that the hit to Profit After Tax (PAT) can be attributed to prudent provisioning and accelerated write-offs.

On Friday (May 17), Bandhan Bank confirmed that it had technically written off loans amounting to ₹3,852 crore during the quarter.

The provisions charged to the profit and loss for the quarter totaled ₹1,774 crore.

Management's optimism about an expedited resolution of the CGFMU audit and its commitment to maintaining FY25 credit costs guidance at 1.8-2% provides some reassurance.

On the other hand, brokerage firm Jefferies takes a more cautious approach with an 'Underperform' rating and a target price of ₹165 per share.

Jefferies highlighted the Q4 profit's significant shortfall due to higher write-offs, which were considerably below estimates.

The brokerage expressed concern over the QoQ decline in slippage, attributing part of it to seasonal factors but noting that the figures remain high.

Clarity on the bank's succession plan remains a critical issue for Jefferies.

It must be noted that shares of Bandhan Bank settled higher on May 18 (Saturday) during a special trading session.

So far this year, the stock of this private sector lender has declined more than 24%.

Earlier, Bandhan Bank shares hit a 52-week high of ₹272 per share on June 1, 2023.