Bandhan Bank Stock Analysis| Q2FY21 Results Analysis

Bandhan Bank Q2FY21 Performance Review

Introduction

Private micro lender Bandhan Bank announced its Q2FY21 results on 2nd November 2020. The bank reported a decline of 5.3% in net profit YoY. However, on the bright side, the bank posted their highest ever quarterly Profits Before Tax (PBT) at Rs 1,233 Crores. Let’s delve deeper and further analyze their results thoroughly.

Bandhan Bank Q2FY21 Results Analysis

Stock Price Movement

• Bandhan Bank stock price has dipped ~53% from its all time high and ~42% in the last one year.
• Let us analyze the reasons behind this stock price fall and latest quarterly results of the bank.

Bandhan Bank Q2FY21 Results

• The bank witnessed a sturdy growth in Net Interest Income (NII) of ~26% YoY, on the other hand caution should be exercised as interest expenses have jumped by ~10% YoY and ~6%  QoQ.
• The Non Interest Income has declined by -1.29% YoY, however a robust upward extension of 22% YoY is seen in the total income.
• Consistent increase in operating expenses by 16.25% YoY and 10.26% QoQ reflect that the company has not adopted to rigorous cost cutting measures.
• As moratorium period has ended, COVID-19 related provisions have fell sharply by 60% on QoQ basis, while standard provisions also declined by ~34% YoY which is a positive sign and resulted in a 67.76% rise in Profit Before Tax (PBT) QoQ.
• Net Profit mainly jumped on the back of lower provisions, strong rise in operating profit and robust net interest income growth.

Balance Sheet

• The Kolkata Headquartered Bank’s balance sheet has increased by 24.4% on YoY basis.
• Robust YoY growth of 24.4% in Balance Sheet Size majorly driven by a healthy surge in total deposits of 34.4% YoY and 9.1% QoQ.
• They reported a phenomenal growth in total deposits which clearly exhibits the conservative frame of mind of people.
• Bandhan Bank is taking advantage of the persistent rise in deposits and have reduced their borrowings by ~15% both YoY and QoQ. These efforts will come to fruition by reducing cost of capital.
• Reported a 95% collection efficiency for microfinance loans and overall collection efficiency was 92% for the quarter. 
• The bank simultaneously posted an impressive rise in total advances by 19.4% YoY.
• Vigorous spike of ~21% in Reserves and Surplus on YoY basis bodes well for the bank.

Deposit Mix

• The Micro lender recorded a remarkable growth of 56.2% in CASA deposits YoY basis which is an encouraging sign.
• We can expect that as the balance sheet size flourishes interest expenses will start declining commensurately.

Advances Mix

• The bank has experienced a significant growth of 27% in their Emerging Entrepreneurs Business (EEB) category on YoY and we should keep a watch on how this plays out in the coming quarters, as it could lead to increased NPAs on bank’s books.

Asset Quality

• As of Sept’20, Bank’s Gross NPAs  and Net NPAs are at 1.2% and 0.40%, while their Provision Coverage Ratio stands at 70%.
• If the bank had not considered deferment as per the interim order of the Honorable Supreme Court the bank would’ve reported Gross & Net NPAs at 5.88% and 2.08% respectively.
• However, the true consequences of moratorium are yet to transpire and there is a possibility of surge in NPAs in coming quarters.

Key Ratios

• Bank’s Net Interest Margin (NIM) has been in the range of 8% – 8.2% over the previous quarters mainly due to higher proportion of EEB loans in advances mix. This has resulted in healthy Return on Assets (RoA) of 3.6% in Sept’20.
• The bank’s Cost to Income Ratio has increased from 27.9% to 29.4% thereby disrupting the downward trajectory it had over the previous quarters.
• They have a CASA ratio at 38.2% and have successfully flourished over the past few quarters.
• Capital Adequacy Ratio (CAR) of the bank is at 25.7% and has been in a down trend over the past 3 quarters.

Shareholding Pattern

• According to RBI regulations, promoter stake should be 40% in private bank. In order to adhere to this regulation, promoters have reduced their stake over the quarters.

Conclusion

There is inherent risk in the business model of the bank i.e Microfinance lending. Also, how the moratorium related NPAs turn out will have major impact on bank’s performance in upcoming quarters.