Comprehensive summary at one pace. Thanks
LIFE IS GROWTH, BUSINESS IS GROWTH. YOU GROW OR YOU DIE (Phil Knight, Founder of Nike)
The only grudge I had with Gruh was that it wasn’t growing fast enough.
That has finally got resolved when Gruh’s parent forcefully decided to merge it with Bandhan. Initially, the merger news came as a huge shock and one was apprehensive of the future of Gruh. What is Bandhan all about? After studying and analysing Bandhan’s performance for full year 2019, the merger for Gruh is possibly a blessing in disguise. Gruh moves into the fold of a faster growing business & an equally mature owner with a long runway of business growth.
I have made a comparison of Bandhan with HDFC Bank (attached) and in my view, Bandhan wins hands down. It truly deserves to be the most valued bank in India at P/B of 6.7x.
- Faster PAT growth of 45%. Growth would have been higher at around 55% but for the Rs 385 cr full provisioning of ILFS loan.
- NIMs of 10.4% highest in the banking industry (more than double of HDFC Bank); RoA of 4.2% again the highest in the industry (more than double of HDFC Bank)
- NPA’s are lower for HDFC Bank but if ILFS exposure is excluded, Bandhan’s NPAs would be lower. Another interesting observation is that Bandhan has taken Standard Asset Provisioning of 1% on its microfinance exposure (RBI requirement is 0.25%). Instead of Standard Asset Provisioning, if Bandhan had provided it as NPA provision, its net NPA would have been zero (page 7 of con call notes attached). This is my understanding and willing to be corrected.
- Cost/income ratio of 33% for Bandhan is the lowest in the banking industry
- On dividend yield being lower for Bandhan, my views https://twitter.com/Multiplier777/status/1125412778703867909
HDFC Bank is a great bank & but in my view, Bandhan is even better.
Disclosure: holding in Gruh which will get merged into Bandhan
Bandhan HDFC Bank comparison.pdf (142.7 KB)
Con Call May 2019.pdf (776.5 KB)
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Is it not too early to conclude that Bandhan is better than HDFC?, the journey has just started for Bandhan, there is a long way to go. Will the same growth sustain in the years to come? It may have surpassed other banks and reached the top in 2018 but to remain at the top is no small feat. I believe in the management of Bandhan and of HDFC too.
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What makes Bandhan the most expensive bank in the country?
https://www.moneycontrol.com/news/business/moneycontrol-research/what-makes-bandhan-the-most-expensive-bank-in-the-country-3950141.html
This statement is applicable for people outside bengal who came to know there is a bank named Bandhan after its IPO process. For us staying in Bengal this financial organization(not bank for us) is already travelled a long path with dignity and success.
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Tks for inputs. What do u think is the moat n USP of Bandhan & is it sustainable? How is the opp size n please tell more about promoter quality and scuttelbutt about Bandhan as you are from Bengal only.
Any concerns as MFI is unsecured and lot of chit fund scams like Saradha etc in Bengal nnis Bandhan benefitting from it? Can Gruh affordable business be scaled up by Bandhan in its area of operation?
Views invited from other readers too on above queries.
I have deep respect for HDFC Bank as a wealth creator with its established track record of 25 years, top class management, excellent risk management skills and a well-diversified portfolio.
However, its large size does impede high growth. It now has a loan book of over Rs 8,20,000 crore compared to Bandhan’s Rs 44,000 crore (5% of HDFC Bank) and Gruh’s Rs 17,400 cr (2%). So in my view, Bandhan/Gruh can grow at double the rate of HDFC Bank for many years.
In the leveraged business of banks, high loan growth without a check on delinquency can ultimately result in closure of business. In this forum itself, we are keenly discussing some of such lenders who are in such a situation today. Fortunately, Bandhan provides confidence in its ability to manage high growth and on its conservative provisioning norms.
When the ILFS crisis struck, many lenders were fearing the provisioning they will have to provide on their exposure & one large pvt bank even went to the extent of refusing to disclose its total exposure to ILFS. On the other side, Bandhan went fearlessly ahead and provided 100% provision on its exposure in the 3rd quarter itself. Another example of its conservatives is reflected in its voluntarily providing 1% provisioning on its MFI exposure even though RBI stipulates a 0.25% standard provisioning.
Sustained high growth can do wonders to even a highly valued stock. A 40% growth for 2 years will bring down the PE ratio of a stock to less than half.
While HDFC Bank will continue its steady growth, a better bet is probably Bandhan/Gruh.
No recommendation. I hold Gruh so my views are biased.
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I understand the concern in the background of bangal based chit funds. But Mr. Ghosh is doing clean business for a long time and proved the class of a growth hungry promoter. He has great amount of respect in Bengal and honored with many prestigious awards from different section of society.
My words may sound repeating and biased,but I have great level of conviction on this perticular business. One example is I invested some amount on the day when this stock touched lower ciccuit of 20% , remembering the saying by Buffett “Be fearful when others are greedy and greedy when others are fearful.”
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Hope you have read the book on bandhan by Tamal Bandopadhyay. Gives few good pointers about promoter and company
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@suru27 - Been wanting to read this book but because of the narrow payoff, haven’t gotten to it. Can you or anyone else who has read the book summarise it for everyone else? It will be very helpful.
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Yes, I did not know before until the IPO, although after going through the information, I could believe in its past and parentage.
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I have good expectations from Bandhan, I don’t have any doubts of its growth but to dethrone the incumbent and that too a behemoth like HDFC Bank is to be seen and cannot be concluded was my opinion. HDFC Bank may have to provide some provisions in the future considering their large loan book and Bandhan may act cautiously as it got to see IL&FS pretty early, and with the advantages that come along with Gruh, it may well become a leading bank in the next few years.
I have positions both in Bandhan and HDFC Bank, I would be more than happy, if Bandhan becomes the next big thing.
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Bandhan bank opened a branch today at Boral,Garia,Kolkata. With this the total count of branches reached at 994.
Hi,
I am planning to buy Bandhan Bank share but I found GRUH is available at some discount to it. So my question is should I buy GRUH in place of Bandhan to gain this arbitrage or I am missing something here ?
You are right; not missing anything. Buy Gruh.
Bandhan Bank received the ‘Best Bank’ as well as the ‘Fastest Growing Bank’ award in the small size bank category at the Magna Awards 2019. MD & CEO, Mr. Chandra Shekhar Ghosh has been recognised as the ‘Banker of the Year’.
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Nice interaction with Mr. Ghosh. Many questions answered and covered few important points and challenges. Interested people in Bandhan must go through this interview.
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In an official communication to its microloan borrowers, Bandhan Bank announced today that microloan interest rate stands reduced by 0.70% p.a. with effect from June 18, 2019, for all new disbursements.
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Equity holders meeting for approval of amalgamation is scheduled on 30 July 2019. Looks like this is the final approval in the current process.