Bandhan Bank slumps 15% on severe RoA guidance cut despite profit jump
Bandhan Bank shares suffered their worst drop since the 2020 pandemic crash after management slashed return-on-assets guidance, signaling deepening margin pressures and macro risks that outweighed a 35% rise in quarterly profit.
Bandhan Bank shares plummeted 15% to Rs 177.50 on the NSE, hitting the lower circuit in what marked the stock's steepest intraday decline since March 2020. The selloff came despite the lender reporting a 35% year-on-year increase in first-quarter net profit to Rs 502 crore. Investors instead dumped the stock over a severe downgrade to the bank's forward profitability guidance.
Management drastically reduced its return-on-assets (RoA) target for the end of FY27 to 1.2%-1.4%, abandoning a previous forecast of 1.6%-1.8%. JPMorgan highlighted that executives also trimmed loan growth expectations to the lower end of a 14-15% range. Management specifically cited rising asset quality risks stemming from elevated energy costs, supply chain disruptions, and uncertain monsoons as triggers for a deliberate growth slowdown.
The reduced guidance overshadowed otherwise positive asset quality trends. Gross non-performing assets improved significantly, falling to 3.15% at the end of June from 4.96% a year earlier. Provisions declined 41% to Rs 683 crore, which managing director Partha Pratim Sengupta noted was the primary driver of the higher net profit.
However, the underlying cost structure alarmed analysts. Operating profit dropped nearly 19% year-on-year to Rs 1,358 crore, even as net interest income rose 6% to Rs 2,920 crore. Net interest margin contracted by 16 basis points to 6.2%. "Higher staff expenses on account of the new labour cost and a 65% rise in tech cost following the West Asia crisis led to the surge in expenditure," Sengupta said.
The combination of margin pressure, higher technology costs, and fierce competition for deposits forced immediate analyst revisions. Nuvama downgraded the stock from 'Buy' to 'Hold', cut earnings estimates by 11-14% across FY27-29, and set a target price of Rs 230. Jefferies reduced its estimates by more than 10% but kept a 'Buy' rating with a Rs 240 target, pointing to potential benefits from FCNR-B inflows.
Opinions on the stock's valuation remain deeply fractured. CLSA maintained an 'Outperform' rating with a Rs 235 target, arguing its own forecasts were already below the bank's old guidance. Macquarie offered the bleakest assessment, slapping an 'Underperform' rating on the shares with a Rs 130 target that implies a further 38% downside. The wide dispersion in broker targets highlights a market still searching for a floor in Indian mid-cap banking valuations amid shifting macroeconomic conditions.
