Buy This Mid-Cap Banking Stock For 21% Potential Gain

Leading brokerage firm Motilal Oswal has given buy rating to Bandhan Bank Ltd for potential return of 20%. The stock has corrected sharply in recent days owing to concerns over its Assam portfolio as 85-90% of total districts in the state have been affected by severe floods.

1. Bandhan Bank Stock Outlook

The mid-cap private sector bank current share price is Rs 262.90 at the time of writing the story. The 52-week high of the stock is Rs 349.55 apiece and 52-week low is 229.55 apiece. According to Motilal Oswal, If you buy the share of the Bandhan Bank today at its current price of Rs 262, you can get a potential gain of 20.69% with a target price of Rs 315.

Current Market Price	Rs 262.90
Target Price	Rs 315
Potential Gain	20.69%
52-Week High	Rs 349.55
52-Week Low	Rs 229.55
1-year return	-19.43%

2. Collection efficiency to take a beating

Collection efficiency (CE), particularly in Assam, has been severely impacted in the past due to multiple events such as the CAA agitation, floods, COVID-19 pandemic, etc. CE dropped to as low as 49% in Jun'21. It gradually recovered and improved to 93% in 4QFY22. The same for the bank improved to 97% from 77% over a similar period. Collections are likely to take a beating due to the ongoing flood situation. Our industry interaction suggests that weekly meetings have been impacted and the recovery trajectory will get prolonged.

3. BANDHAN demonstrated a higher resilience in earlier crises

Historically, BANDHAN has demonstrated higher resilience in dealing with various crises, and delinquencies have been much lower v/s the industry. During earlier events, where the customer's ability to pay or businesses had got impacted (Cyclone Fani, floods, GST, or demonetization), the incremental loss rates have been limited.

Though CE dropped sharply, the recoveries improved with a lag. However, when the issue pertains to the willingness or credit culture (farm loan waiver or Assam agitation), the incremental loss rates have been higher (3-4% range). The SMA book witnessed a healthy reduction, may rise in the near term: We note that the SMA book across various buckets has witnessed a constant decline, led by an improving environment, which has supported a gradual recovery. The SMA book has moderated to 6.5% in 4QFY22 v/s 37.1% in 1QFY22.

4. Earnings have witnessed acute volatility

BANDHAN's earnings have demonstrated acute volatility due to the cyclical nature of the MFI business. Our PAT and ABV projections have witnessed sharp swings of - 24% to 22% over the past five quarters. This has rendered the stock extremely volatile to external events and shocks.

5. Valuation

According to Motilal Oswal, "The performance of the MFI industry has been resilient in recent months, with assets stress declining and growth trajectory holding strong over 4QFY22. This is reflected in BANDHAN's performance as well. Given the ongoing developments in Assam, we expect the stress dissolution rate to moderate, while the recovery and ongoing improvement in CE may also get affected. We remain watchful about the near-term impact, though the stock has corrected sharply by approximately 20%/15% since its 4QFY22 result/past 3 weeks and trades at reasonable valuations of 1.7x FY24E P/BV against its average FY23-24E RoE of 24%. We maintain our Neutral rating with a revised TP of INR315 (2x FY24E P/BV) and will review our estimates after its 1QFY23 result."

About Bandhan Bank

On August 23, 2015, Bandhan Bank was born with a bouquet of products for customers in all segments. In its journey from an NGO to an NBFC and finally a universal bank, the objective has remained reaching out to the unbanked and the under-banked and providing last-mile banking for all, big or small. Driven by the philosophy of 'Aapka Bhala. Sabki Bhalai.', (Your benefit. Everyone's welfare.) Bandhan Bank's core purpose has graduated from financial inclusion to inclusive banking, according to its website. The market capitalization of the bank is Rs 42,428 crore.

Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.