InvestorQ : Why did the stock of Bandhan Bank fall sharply despite announcing fairly good results for the September quarter?
NISHA Nayak made post

Why did the stock of Bandhan Bank fall sharply despite announcing fairly good results for the September quarter?

2 years ago

In fact, over the last 15 days, the stock has lost almost 20% from it is peak levels of late October. However, the stock fell sharply on the day of the results underlining that markets are having bigger concerns about Bandhan Bank valuations at the current level. Here are some key points about Bandhan Bank to be noted.

· You are right that the quarterly results were fairly sound for the bank. In fact for the September quarter, Bandhan Bank reported a 38% growth in net profit on a sequential basis. In fact, Bandhan Bank earns more than all the PSU banks put together as a group. Gross NPAs for Bandhan Bank are at a fairly comfortable level of 1.8%.

· However, the correction in the stock is more due to some troubles it has been facing in the North East, especially in the state of Assam. The latest protest has come from women borrower groups in the state of Assam. Several women organizations have demanded a ban on microfinance lenders from doing business in Assam and Bandhan has a fairly strong presence in microfinance in the state of Assam. In fact, nearly 18% of Bandhan Bank’s assets under management come from Assam, making it the most vulnerable to any negative decisions. Delinquencies have gone up sharply after the recent floods which impacted the repayment capacity of the borrowers.

· Then there are also valuation concerns on Bandhan Bank. The stock currently quotes at a P/BV of 5.1 times forward which is the highest even among the private sector banks including the stronger banks like HDFC Bank and Kotak Bank.

· Finally, there is the long pending ownership divestment issue that is still pending. The bank has already put in several efforts to bring promoter stake down including the acquisition of Gruh Finance. However, promoter shareholding currently stands at 82%, far higher than the regulatory level of 40%. The bank has already been penalized for the same and this overhang of regulatory non-compliance continues to weigh on investor sentiment.

That is the reason, in fact regulatory non-compliance is the most important, Bandhan Bank stock is so sharply down.