Bandhan Bank stock surges over 13% on strong Q1 earnings. Should you invest now?

Shares of Bandhan Bank surged 13.4% in today’s intraday trading, reaching ₹218.20 apiece, a level not seen since February 2024. This increase followed the bank’s announcement of a higher-than-expected profit after tax for the quarter ending in June, surpassing analysts’ estimates.

On Friday, the bank reported a 47% increase in net profit, reaching ₹1,063 crore for the June 2024 quarter, up from ₹721 crore in the same period last year. This growth was driven by controlled operating expenses and provisions.

For Q1 FY25, the bank's net revenue was ₹3,533 crore, a 23% increase from ₹2,876 crore in Q1 FY24. Net interest income (NII) for the quarter stood at ₹3,005 crore, up 21% from ₹2,491 crore in the previous year. The net interest margin (NIM) remained stable at 7.6% quarter-over-quarter.

The provisions (other than tax) & contingencies charged to the profit and loss for Q1 FY25 were at ₹523 crore, compared to ₹602 crore in Q1 FY24. Operating profit was ₹1,941 crore in Q1 FY25 compared to ₹1,562 crore in Q1 FY24, up 24%, according to the company's earnings report. 

The bank's gross non-performing assets (NPA) improved to 4.2% in Q1 FY25 from 6.8% in Q1 FY24, while its net NPA decreased to 1.1% from 2.2%. The provision coverage ratio as of June 30, 2024, increased to 73.7% from 71.8% in the previous quarter.

Total deposits as of June 30, 2024, amounted to ₹1.33 lakh crore, a 23% year-over-year increase from Rs. 1.08 lakh crore, though this represents a 1.5% decline from the previous quarter. The CASA ratio, thus, moderated 372 basis points QoQ to 33.4%.

Gross advances reached ₹1.26 lakh crore, up 22% year-over-year from Rs. 1.03 lakh crore and showing a 0.7% increase quarter-over-quarter, the earnings report showed. 

The bank guided 18–20% credit growth over the next 2-3 years, and it is aiming for faster deposit growth compared to advance growth.

Should you buy the stock after Q1?

Following the release of the June quarter results, analysts have adjusted their target prices for the stock.

Motilal Oswal has increased its earnings estimates for FY25 and FY26 by 10% and 11%, respectively. The brokerage now anticipates an FY26 RoA/RoE of 2.2% and 18.9%. It has maintained a 'Neutral' rating with a revised target price of ₹220, based on a valuation of 1.3x FY26E ABV.

Kotak Institutional Equities has reiterated its 'Buy' rating on the stock with an unchanged fair value estimate of ₹250. At this valuation, the brokerage views the bank as relatively inexpensive, trading at 1.5x book value and 9x June FY2026E EPS. It projects RoEs will approach approximately 15%, positioning the bank favorably compared to its peers.

Although the bank has experienced some unexpected outcomes in recent quarters, the brokerage does not consider these to be significant. It believes the bank is well-positioned for a potential re-rating, despite ongoing macroeconomic uncertainties.

Conversely, Emkay Global has revised its earnings forecasts for FY25–27, expecting the bank to achieve a RoA of 1.9–2.1%, which is below its historical averages due to ongoing asset quality issues. Emkay Global has retained a 'Reduce' rating on Bandhan Bank with a target price of ₹175 per share, based on a 1x June-26E ABV valuation.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.