Global brokerage firm Nomura initiated a buy rating on
with a target price of Rs 350, suggesting an upside potential of up to 47%.
The brokerage expects that the emerging entrepreneur business (EEB) stress will reduce in the future and earnings will normalize in FY24.
In Q2, the slippages at the bank increased drastically to Rs 3,950 crore as against Rs 1,130 crore in the June quarter. Also, slippages from the EEB pool increased to Rs 3,620 crore owing to transfer from the restructured book and the impact of floods in Assam and certain parts of Bihar and Madhya Pradesh.
“Management guided that it expects ‘business as usual’ (BAU) slippages (ex-restructured book) in the range of Rs 700-800 crore every quarter. Management has reduced its estimated recovery in 2H23 on account of implementation of stringent underwriting norms of not extending credit to customers who just came out of NPA,” noted the brokerage report.
The brokerage has slashed earnings estimate by 27% for FY23F and ~5%/7% for FY24F/25F, on lower advance growth, margin pressure, and higher credit costs of 3.1% in FY23F and 2.3% (vs guidance of 1.8%) over FY23-25F.
“We expect the EEB stress pool to get mostly written down in FY23F and ROEs to recover to ~22% over FY24-25F,” noted the brokerage.
A pre-provision operating profit (PPOP) of 16% was driven by a decline in NII growth of 13% QoQ. Overall, the decline in NIMs was ~100 bp q-q given the impact of interest reversals and the balance was on account of an increase in the cost of funds. Management expects the 2Q NIM decline was transitory and is confident it can maintain NIMs at ~7.5-8% in the near term. The brokerage has even lowered its NIM estimates for the bank by 90bp for FY23F factoring in the impact of interest reversals and cost of funds headwinds.
The brokerage has lowered down the target price on the lender factoring in near-term weak sentiment.
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