Largecap Banking Stock Available at Near 52-Week Low Price, Buy Stock For 53% Return: ICICI Securities

Top brokerage firm ICICI Securities has given a buy rating to the stock of Bandhan Bank Ltd. The bank's share price fell by around 10% in trade on October 31 after its Q2 earning report, making it available at a near 52-week low price on NSE.

Stock To Buy: Target Price

The Current Market Price (CMP) of Bandhan Bank Ltd. is around Rs. 239.40. ICICI Securities has estimated a Target Price for the stock at Rs. 365. This stock has the potential to give a 53% return, in the upcoming 1 year. It is a large-cap stock with a market capitalization of around Rs. 38,426 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 239.40
Target Price	Rs. 365
Potential Upside	27.10%
52-week high share price	Rs. 349.55
52-week low share price	Rs. 229.55

Q2 earnings

Bandhan Bank's Q2FY23 earnings failed to meet I-Sec as well as consensus low expectations. Volatility continued with elevated delinquencies, aggressive write-offs, credit cost of 5.3%, NIM decline of 100bps QoQ and elevated opex to assets at 3.3%. Considering the existing GNPA of 9.4%, SMA-2 pool of 5.7%, SMA-1 of 2.6% with more than 55% coverage, management upped its credit cost guidance to 2.85-3.15%. Gross advances moderated to 17% YoY, while housing loan disbursements stood at Rs. 18.6bn, which were flat QoQ but up 90% YoY.

Stock Valuation:

Giving a buy rating, ICICI Securities said, "Factoring in higher credit cost and incremental opex, we revise earnings downwards by 13%/7% for FY23E/24E, respectively. Disbursements in EEB segment are normalising post disruption in Q1FY23. Mortgage lending and commercial banking are gaining traction. Franchise, post absorbing the interim EEB stress pool, has potential to deliver >20% RoE. Maintain BUY with a revised target price of Rs. 365, assigning 2.25x FY24E book (earlier Rs408; 2.5x)." However, key risks are higher than anticipated stress and related credit cost, fee income pressure.

Q2 slippages

Given the lagged effect of Assam floods and forward flow from restructured pool, slippages in Q2FY23 were elevated at Rs. 39.54bn of which >90% were from EEB pool. This is equivalent to >4% of the overall portfolio and >6% of the EEB portfolio turning delinquent in one single quarter. Most slippages emanated from Mar'22 EEB restructuring pool as it entirely moved out of the moratorium in H1FY23. Slippages (ex-restructured) were Rs. 12bn and management has indicated steady-state gross slippages of Rs. 7-8bn.

Disclaimer

The above stock was picked from the brokerage report of ICICI Securities. 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.