While most banking stocks have rallied stupendously this year so far, shares of Bandhan Bank have bucked the trend. They are down 7 percent this year as of December 1 closing, against a nearly 9 percent gain in the benchmark Sensex.
Bandhan Bank had an analyst meet on December 01, 2022, where the lender discussed its business overview and further strategy.
Among the key highlights of the analysts' meet were: (i) geographical diversification, (ii) portfolio diversification, (iii) focus on granular deposits, and (iv) revamping its IT and digital capabilities.
We collated the views of several brokerage firms and technical analysts to assess the prospects of the stock. Here's what they said:
Brokerage firm: Motilal Oswal Financial Services
The brokerage firm has a 'neutral' call on the stock with a target price of ₹270. The brokerage firm said the asset quality-related issues are likely to peak in the third quarter of FY23 but should normalise from Q4FY23.
"We note that credit cost in the MFI business tends to demonstrate severe volatility during stressful periods, but cycles are generally shorter and earnings recovery fairly sharp. Over FY20-22, while RoE (return on equity) plummeted to 0.7 percent from 23 percent, we estimate an equally quick recovery with RoE trending to 21% over FY22-24 from nearly 1 percent," said Motilal Oswal.
The brokerage believes the near-term slippages may remain high as the bank looks to clean up the remaining stress, which will continue to exert pressure on loan growth and margin.
"We remain watchful of its asset quality, particularly in the Assam portfolio, which can keep credit cost elevated. Though the management expects healthy recoveries over the second half of FY23 (H2FY23) or the first quarter of the next financial year (Q1FY24), slippages are likely to be higher during Q3 or Q4FY23, thus keeping its overall performance under pressure," said Motilal Oswal.
Brokerage firm: Kotak Institutional Equities
The brokerage firm maintained an 'add' call on the stock with a revised fair value (target price) of ₹280 from ₹300 earlier.
"At our fair value, we are valuing the bank at 1.6 times book and 8 times FY2024E EPS (earnings per share) for RoEs remaining healthy at nearly 20 percent as it recovers from the current Covid cycle," said Kotak.
"We acknowledge that our positive stance on the stock is getting tested given the delay in recovery, but we believe that there is strong visibility of improvement in the underlying macro conditions for the bank’s target segment. Hence, we would prefer to have this stance rather than wait until the headline print reports this improvement," the brokerage firm added.
Brokerage firm: HDFC Securities
HDFC Securities also has an 'add' call on the stock with a target price of ₹273.
HDFC said while the bank’s focus on building borrower discipline in its flagship business and accelerated investments in portfolio diversification and distribution could gradually yield constructive outcomes, near-term return ratios are likely to remain soft from continued provisions and elevated opex.
"While we factor in elevated credit costs, we remain conservative on the underlying customer franchise, arguing for a lower multiple as Bandhan pivots towards relatively low-risk businesses, with implications for potential franchise RoEs," said HDFC Securities.
Brokerage firm: JM Financial
JM Financial maintained a 'buy' call on the stock but reduced the target price to ₹325 from ₹425 earlier.
JM Financial said Bandhan’s recovery has been delayed versus other microfinance lenders given the prolonged Covid impact and concentration issues which led to significant stock price underperformance over the 6-12-month basis.
"We see (a) delivery on current guidance (peak stress in Q3 and moderation of credit costs thereafter), (b) efforts to diversify, and (c) building up of provision buffers should result in confidence coming back in bank’s medium-term return prospects. Current valuations (1.5 times FY24E BVPS) offer a favourable risk-reward in this context," said JM Financial.
Analyst: Jigar S. Patel, Senior Manager - Equity Research, Anand Rathi Share and Stock Brokers
The analyst highlighted that the bullish divergence is seen in the daily MACD histogram along with a bullish cross. Also, daily stochastics has turned overbought, hinting at a possible upside in the coming sessions.
"One can buy at the current levels in a small tranche and another around ₹220 level with an upside seen till ₹270; support is seen at ₹200," said the analyst.
Analyst: Vaishali Parekh, Vice President - Technical Research, Prabhudas Lilladher
The stock has taken support near the trendline support of ₹210 where it has bottomed out and indicated a trend reversal.
"With the trend getting better, there is immense upside potential with an initial target of ₹275 and thereafter ₹290 levels. The view gets negated only after a breach below ₹210, else one can carry on with the positive momentum in the coming days," said the analyst.
The stock has some resistance near ₹240. It can continue its upward journey to the significant level of 200DMA at ₹290.
According to a MintGenie poll, 26 analysts on average have a ‘buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.