Update on the Indian Equity Market:
On Tuesday, NIFTY closed flat at 17,890 (-0.2%) led by REALTY (+4.0%), PSU BANK (+2.4%), and MEDIA (+1.0%). Those in red were METAL (-2%), OIL & GAS (-0.8%) and HEALTHCARE (-0.6%). Top gainers in NIFTY50 were MARUTI (+2.2%), NTPC (+2%), and TITAN (+2%). The top losers were TATASTEEL (-3.4%), GRASIM (-2.2%), and JSWSTEEL (-2%).
Excerpts of an interview with Mr. Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank with CNBC-TV18 on 01st November 2021:
- Asset quality is improving since the last quarter. In Q1, they faced a severe effect of the second wave of COVID-19, but from September it improved in a way that gives comfort to the bank and its future growth is coming
- From Q1 to Q2, collection efficiency has improved by 16% and the Special Mention Account-0 (SMA-0) has become half, SMA-1 has come 25 percent down and SMA-2 is flat because they made higher provisions in this quarter.
- Restructured book amount is ₹ 83.3 bn.
- The second wave was severe than the first wave and the second wave entered the Eastern region which is Bandhan Bank’s core area in May. Hence, the May-June months were affected by that and the impact was seen in Q1FY22.
- Eventually, August witnessed some improvement and September is when the bank saw a pick-up.
- The Assam government has informed customers that if they don’t pay their respective dues, their credit history will be affected and they will not get credit in the future.
- Ground-level customers are returning back and hence collection efficiency improved by 33% from June to September particularly in Assam.
- Small borrowers are asking for time which is duly provided and it is seen that 66% of these borrowers are paying to the bank and NPA customers are also paying 65% to them
- As a result, all of these customers don’t belong to the NPA bucket, they belong to the regular bucket.
- Every day, 14,000 of Bandhan Bank’s customers are closing their loans which means they are coming to the regular category from the restructured and NPA one.
- If this continues, the bank expects this to normalize in the next couple of months.
Asset Multiplier Comments
- Bandhan Bank declared 2QFY22 earnings recently and reported a loss, impacted by significantly higher provisions. The Bank has provided for NPA to protect its balance sheet from the potential impact of a 3rd Covid wave.
- With economic activity picking up ahead of the festive season, we believe credit growth will pick up. The bank is likely to be a beneficiary of this.
Consensus Estimate (Source: market screener websites)
- The closing price of Bandhan Bank was ₹ 309/- as of 02-November-21. It traded at 3x/2x/2.1x the book value estimate of ₹ 102/130/150 for FY22E/ FY23E/FY24E respectively.
- The consensus target price of ₹ 310/- implies a Price/book multiple of 2.1x on the FY24E book value of ₹ 150/-.
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