Buy This Mid Cap Banking Stock For 48% Potential Upside: Edelweiss Wealth Research

Edelweiss Wealth Research, a leading brokerage firm, is bullish on Bandhan bank Ltd, a mid-cap banking stock, and recommends 'buy' for a target price of Rs 415 apiece. According to the brokerage's estimated target price, if you buy the stock of the company at the Current Market Price, you could witness potential gains of around 48% in 12 months. The management has guided ~20% loan growth for FY23, and we have projected 21% CAGR credit growth over FY22-24E, along with an improvement in asset quality and return ratios.

Bandhan Bank

Bandhan Bank Ltd is a mid-cap banking stock with a market capitalization of Rs 44,103 crore.

25 July, the shares of the bank opened at Rs 286 apiece, and closed at Rs 273.80 apiece, respectively.

Last week, Friday, 22 July, the shares bank closed at Rs 98.14 apiece giving a negative return of 2.49% in a week. It has fallen 4.27% in the past 1 month, 10.24% in the past 1 year, and 40.66% in the past 3 years, respectively.

The 52-week low of the stock record on 27 December 2021 is Rs 229.55 apiece, and the 52-week high recorded on 17 May 2022 is Rs 349.55 apiece.

The ROE of the stock is 0.72. TTM Pe ratio is 68.97 and PB ratio is 2.54. TTM EPS is Rs 3.97 and its face value is Rs 10.

Quarterly loan growth suffers a triple whammy; guidance nonetheless maintained

The bank's net advances grew 22% YoY but de-grew 3% QoQ to Rs 90,883 cr. Growth during the quarter was impacted by a triple whammy: a) effect of seasonality, as Q1 tends to be a historically slow quarter; b) floods in Assam, which impacted disbursements; and c) new RBI guidelines for MFI, which temporarily impeded disbursements. The impact was largely restricted to the MFI book. The bank's non-micro retail book grew 78% YoY and 4% QoQ while the mortgage book grew 27% YoY and 4% QoQ. Deposits rose 20% YoY, but reduced 3% QoQ. The decline was driven almost entirely by the bank's bulk deposit base, which decreased 12% sequentially. CASA deposits, on the other hand, saw a marginal increase QoQ. Consequently, the CASA ratio expanded 26 bps YoY and 158 bps QoQ to 43.2%.

Assam floods lead to asset quality deterioration

The bank's GNPA and NNPA deteriorated 79 bps and 26 bps QoQ to 7.25% and 1.92%, respectively. However, slippages declined 18% QoQ to INR1,125cr, which equates to ~4.7% of the bank's loan book (vs 5.5% slippage in Q4FY22).

Moreover, ~28% of the slippages came from the restructured book. Overall, the stress pool in the EEB book increased from Rs 11,900cr (19% of EEB advances) at the end of the previous quarter to INR12,100cr (21% of EEB advances) in Q1FY23. Against this stress pool, the bank holds Rs 7,600cr in provisions, and another INR2,500cr is expected from CGFMU recoveries. Most of the increase in overall stress was due to the floods in Assam, where collection efficiency (excluding NPAs) dropped from 98% in March 2022 to 93% in June 2022.

The management stated that collections have since improved and expects complete normalisation by the end of the second quarter. Notably, the management has maintained the credit cost guidance of 2.5% for FY23 that was projected in the previous quarter. The bank remains well provided with PCR of ~75%.

The brokerage suggests 'buy' for a Target Price of Rs 415 apiece

Edelweiss Wealth Research has said, "We believe this was a weak quarter for the bank, albeit largely due to external conditions in Assam. Even as overall stress increased, the decline in slippages and retention of credit cost guidance lead us to conclude that the floods are unlikely to have a lasting effect on the bank's performance through the rest of the year. We project RoA and RoE of 3.5% and 25%, respectively, in FY24E. This should result in a re-rating for the bank. Thus, we maintain our trading 'BUY' on Bandhan Bank with a target price of Rs 415, indicating an upside of 45%."

Disclaimer

The stock has been picked from the brokerage report of Edelweiss Wealth Research. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.