Hold Bandhan Bank Ltd For Target Rs.310 - ICICI Direct
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Weak performance; still time to recover…
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 66% of loans are from emerging enterprise business (EEB)
* Also, 1152 branches in 34 states, UTs and total customer base of 2.3 crore.
Q1FY22 Results: Bandhan Bank reported a deterioration in asset quality.
* GNPA up 137 bps QoQ to 8.18%; restructuring at | 4661 crore (5.8% of book)
* Accelerated provisions of | 751 crore, PCR up from 50% to 62% QoQ
* NII up 20% QoQ, NIMs improve 170 bps QoQ to 8.5%
* Loan growth flat YoY while deposits up 27.6% YoY, down 0.8% QoQ.
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.
* We retain our HOLD rating on the stock
* Target Price and Valuation: We value Bandhan Bank at ~2.3x FY23E ABV and maintain target price for the stock at | 310 per share.
Key triggers for future price performance:
* Balance sheet strengthening could keep near term credit cost high
* Sharp recovery in collections post unlocking could boost performance
* Assam government’s scheme and credit guarantee fund acts as safety net
Alternate Stock Idea: Besides Bandhan, in our coverage we also like CSB Bank.
* CSB Bank has shown meaningful transformation in its overall performance in the past few years and currently has focus on gold and SME loans
* BUY with a target price of | 380.
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