This is part 2 of my observations from the Bandhan DHRP. For part 1, click here.
Some points worth spending some time over before making your decision to invest in Bandhan IPO:
- 87% of lending book consists of microloans (unsecured); in case of mass defaults (low to medium probability) NPAs may rise at alarming rate
- Diversification of product portfolio to other retail products is expected to bring down profit margins, RoE and RoA as they are low-margin products as compared to microloans
- 5x post IPO book value, is at premium to peer banks. Management justifies it by saying it is a unique business model and can’t be compared with other banks.
- Post raising capital, the bank would need to grow at 70-75% CAGR (rough estimate) in 3-4 years to use the capital raised.
Hope it helps!