Bandhan Bank: ICICI Securities sees over 60% upside despite the stock trading at a 7-month low; Here's why

Shares of Bandhan Bank were trading at ₹257.85 per share on the BSE at 10.15 am on September 29, 2022, up 1.46%. Domestic brokerage firm ICICI Securities expects the stock to hit a high of ₹408/share, which is a 61% upside from its September 28 closing price.

Bandhan Bank hit its 52-week high of ₹349.60 on October 21, 2022. The stock gained buying momentum in January this year and rose 28 percent, from ₹248.80 to ₹315.55 per share. Since then, it failed to continue in a bullish direction and dropped 20%.

The stock has lost nearly 13% of its value in the last week and is currently trading at a 7-month low of ₹253.80.

Bandhan Bank is a large-cap stock with a market cap of ₹41,000 crore.

According to the brokerage, the bank's net interest income will rise from ₹8,700 crore in FY22 to ₹10,500 crore in FY23 and ₹12,300 crore in FY24. The bank's net profit is also expected to increase from ₹100 crore in FY22 to ₹4,500 crore in FY23.

According to ICICI Securities, Bandhan Bank's GNPA will fall to 4.8% in FY23 from 6.2% in FY22. It also expects the ROE to increase to 23.1% in FY23 from 0.7% in FY22. Furthermore, EPS is expected to rise by ₹0.8 to ₹28.0 in FY22.

On disbursement and collection efficiency, the brokerage firm expects a trend toward normalization, post the Q1FY23 disruption due to revised RBI regulations and the Assam floods. The brokerage is constructive on mortgage lending growth as well. Positively, incremental requirements for RIDF investment, or PSL certificate buyout, would be minimal given no further PSL declassification. Increased franchise investment will likely continue.

Loans qualifying as PSL for Bandhan fell to ₹564 billion in FY22 (57% of advances), down from ₹744 billion in FY21 (88% of advances). This was due to a change in its PSL reporting policy. The record of landholding of borrowers is required for classification as small and marginal farmers and investment in plant and machinery for eligibility under the micro-enterprise category based on representation made by the respective borrowers.

As per RBI's direction post the assessment of FY20 accounts, the bank was asked to declassify loans under both categories. The RBI has asked the bank to appoint an independent auditor for the PSL status assessment of these declassified loans. Auditors were appointed in consultation with and seeking RBI’s approval. The auditor seems to have submitted the report of its findings. Going ahead, the incremental requirement for RIDF investment, or PSL certificate buyout, would be minimal given no PSL shortfall or declassification in FY21/FY22, said ICICI Securities.

Assam floods in Jun 2022 disrupted collections as a result the bank reported a decline in collection efficiency in the state from 92% on Mar 22 to 85% (including NPA) and to 72% (including restructured pool as well) on Jun 22. With the effects of the flood subsiding, “We expect some improvement in collection efficiency by September.” said the brokerage.

Bandhan is looking to open more than 500 branches in FY23, of which a predominant share would be outside its key states of Assam and West Bengal. The bank is also investing heavily in technology. All this would require incremental Opex, hence the guidance of Opex to assets in the range of 2.6-2.7% should hold, it says.

On July 22, Bandhan Bank announced a 137 percent year-on-year increase in net profit of ₹886.5 crore for the first quarter FY23, compared to ₹373.1 same quarter of last fiscal.

Total income during April-June 2022-23 rose to ₹2,8441.1 crore from ₹2,731 crore in the same quarter of the previous fiscal year.

Net interest income for the June quarter stands at ₹2,514.4 crore, up from ₹2,114.0 crore the previous year. The bank's gross non-performing assets came in at 7.25 percent in the June-ending quarter compared to 8.18% in the March quarter. Total deposits increased by 20.3% year on year to ₹93,000 crore in the April-June quarter, from ₹77,336 crore in the previous year.

An average of 25 analysts polled by MintGenie have a 'buy' call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.