Bandhan Bank’s Q4 FY25 performance, while riddled with asset-quality turbulence, paints a story of resilience and anticipated recovery. Despite a spike in slippages—especially from its EEB (Emerging Entrepreneurs Business) portfolio—the Kolkata-headquartered lender demonstrated signs of stability. According to Anand Rathi's latest research, the bank is poised for a turnaround in H2 FY26, with slippage normalization, robust loan growth, and a maintained net interest margin (NIM) forecast to lift earnings. The brokerage retains a Buy rating and values the stock at a 12-month forward target price of Rs 207, representing a healthy upside from its current level of Rs 166.
Strong Target Backed by Earnings Visibility
Anand Rathi has reaffirmed a “Buy” rating on Bandhan Bank, assigning a target price of Rs 207. The valuation is derived using a two-stage DDM (Dividend Discount Model), equating to 1.1x FY27e Adjusted Book Value (ABV).
The optimistic outlook stems from:
High expected returns on assets (~1.5%)
Sustained interest margins
Normalization of slippages in the EEB portfolio
Strong regional collection efficiencies in West Bengal and Assam (~99%)
Slippages Rise, But Stress Recognition Nears Completion
Gross slippages rose by 8% quarter-on-quarter, reaching Rs 17.5 billion—about 5.5% of the loan book. While this appears troubling, the 50-bps QoQ decline in the DPD (Days Past Due) 1-90 book reflects reduced incremental stress. The SMA book also showed improvement, indicating proactive stress resolution.
The EEB segment’s stress pool—already under recognition for 17 quarters—is unlikely to deteriorate further, positioning the bank to outperform peers in managing microfinance exposure.
Net Interest Income Slows, But Margins Are Steady
Bandhan reported Q4 FY25 net interest income of Rs 27.6 billion, reflecting a 15.3% YoY growth, but a slight sequential dip. Nonetheless, NIM held stable at 7.1%, supported by pricing power and asset mix.
A consistent NIM around 6.6%–7.0% over FY25–27e is expected, with contribution from the expanding retail and commercial banking segments.
Collection Efficiency Remains Robust in Core States
Collection efficiency in the EEB book hit 97.8% in Q4, up from 97.4% in Q3. In West Bengal and Assam—Bandhan's strongholds—the rate neared 99%.
This reaffirms the bank’s strategic foothold in its legacy markets, despite regulatory and weather-related challenges that often disrupt MFI portfolios.
Profit Outlook: High RoA and RoE Expected Ahead
Anand Rathi forecasts Bandhan’s Return on Assets (RoA) at 1.5% and Return on Equity (RoE) at 12.5% by FY27. The pickup in profitability is driven by:
Mid-teens loan growth
Controlled credit costs
Margin retention
The firm believes the current provisioning cycle is peaking, and with lower slippages ahead, Bandhan's bottom line is set to improve sharply from H2 FY26.
Key Financial Metrics Snapshot
Here's a look at the key numbers shaping investor sentiment:
TABLE
Loan Portfolio Composition: EEB Share Declining
Bandhan's EEB portfolio now comprises just 41.3% of total loans—down from nearly 50% a year ago. The mix is shifting towards safer and more diversified segments:
Commercial Banking: 26.5%
Mortgage Loans: 24.2%
Retail: 8%
This strategic shift reduces overexposure to volatile microfinance loans, insulating the bank from systemic shocks in the MFI space.
Risks: Execution and Loan Growth the Watchpoints
While the trajectory appears positive, Anand Rathi flags two primary risks:
1. Slower-than-expected loan growth: Any deceleration here could hamper revenue expansion.
2. Persisting EEB stress: Though recognition is nearing completion, large legacy slippages remain a concern if macro conditions worsen.
Valuation, Price Band, and Investor Levels
Bandhan Bank currently trades at 1.1x FY27e P/ABV—a level considered attractive given its growth recovery and margin profile. The brokerage suggests tactical accumulation around Rs 166, with Rs 225–Rs 230 as short-term resistance. Investors are advised to maintain a stop-loss near Rs 150 for risk management.
Conclusion: Buy the Dip, Eyes on H2 FY26
Bandhan Bank’s recent underperformance masks its improving fundamentals. With collection metrics strong, slippages peaking, and return ratios poised to improve, the bank offers a classic turnaround opportunity. Anand Rathi’s bullish stance is grounded in realistic, data-driven projections. Investors with a one-year view should look at current levels as an attractive entry point, while tracking slippage trends and EEB portfolio dynamics as near-term triggers.
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