Bandhan Bank – in a sweet spot?

@iraycd Thankyou for your kind words but clearly I don’t deserve it.
The bottom line of the above post was that I was expecting 150cr to 200cr provision (Post CGMFU adjustment) but BB did 1100cr of provisioning ( This is excluding ARC related provisioning)

Now with some learning for my past experience I present my Q4 view.

I don’t understand what kind of ARC transaction is this in which BB is subscribing to some part of it if anybody can explain this would be really helpful.

ARC ANALYSIS

Recent ARC transaction – ARC along with Investor has subscribed to 51.70% of Security Receipts amounting to Rs. 414.04 Crore whereas Bandhan Bank has subscribed to 48.30% of Security Receipts amounting to Rs. 386.96 Crore,” the filing added

Last time BB did 414cr of ARC related provisioning this was because they subscribed 387cr of SR for which they did provisioning and on books had 0 NET SR.

The balance 414cr which was subscribed by third party was shown as other income.

**clearly this time the situation is same so it would be fair to assume that they would do same 400cr provisioning for ARC and 400cr would reflect in other income ( I might be wrong here because this type of ARC transaction is new for me)

So we can look at 500cr of provisioning for NON ARC related provisioning. Which is under management guidance.

IMPORTANT POINT AND CALCULATIONS

1. Their Q3 NIM was 6.5% but this December quarter NIM was 7.3%. So they took a rate hike of 200bps in November so that effect we would see in Q4. As per management their steady state NIM is 7.8%

2. Q4 is their peak in terms of disbursement, recovery

3. The best part is their TD and savings rate is in line with other banks but their NIM is 2 time them so they can hike their cost of funds by 50bps, still maintain a good NIM and attract deposit. ( I don’t see them having a lability problem this is a big positive)

Q4 they can have a provision requirement of 900cr which is 500cr less than Q3 so taking all Q3 numbers but Q4 provisioning they can have a PAT for Q4 of 800cr to 900cr .

BB is trading at 15PE on a lower earning cycle. Please note they generate 2 times interest earnings on 100rs compared to other banks. So mathematically they should trade twice the PB as other banks but considering they moving more towards the competitive lending and higher risk of credit cost I would say exiting BB at 3PB is a good strategy.

ONE VERY IMPORTANT POINT

Their incremental provisioning over a period of 8months is going to be very low.

I was lucky enough to buy good quantity below 190rs and I believe 300rs to 350rs is going to be a good exit. I see this price coming by max 18months ( I try to keep my expiations low)

@Worldlywiseinvestors Sir any comments for your side on how can I further improve or see the story in a different way

Disclaimer – Invested