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Not yet out of the woods…

About the stock: Bandhan Bank was incorporated in 2015 as RBI granted a universal banking license. The bank has a strong presence in eastern and northeastern India with MFI loans being its forte.

* Total 65% of loans are from emerging enterprise business (EEB)

* Also, 1176 branches in 34 states, UTs and total customer base of 2.5 crore

Q3FY22 Results: Modest operational show; stress movement to be watched.

* GNPA flat at 10.8% QoQ; restructuring at | 6600 crore (7.5% of book)

* NII up 9.8% QoQ, NIMs expand 20 bps QoQ to 7.8%

* Provisions fall sharply by 85.6% QoQ; thus PAT up 36% YoY to | 859 crore

* Loan growth at 9.6% YoY while deposits up 18.7% YoY

What should investors do? Bandhan Bank has underperformed in the past year as challenges pertaining to asset quality have emerged with the micro loan segment being impacted the most. However strong loan recoveries could reflect positively.

* We retain our HOLD rating on the stock

Target Price and Valuation: We value Bandhan Bank at ~2.2x FY24E ABV and assign target price of | 300 per share

Key triggers for future price performance:

* Improvement in disbursement to support business offtake ahead

* Despite improving collections in key states of West Bengal and Assam apprehensions due to pandemic should remain an overhang

* Materialisation of estimated recoveries of ~| 5000 crore in coming quarters could bolster profitability

Alternate Stock Idea: Besides Bandhan, in our coverage we also like HDFC Bank.

* HDFC Bank is a leading private sector bank with consistent growth and operational performance over various cycles. The bank has maintained superior return ratios compared to its peers resulting in premium valuations

* BUY with a target price of | 2000

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