ICICI Direct is bullish on Bandhan Bank has recommended buy rating on the stock with a target price of Rs 650 in its research report dated October 11, 2018.
ICICI Direct's research report on Bandhan Bank
AUM growth continued to remain robust at 51% YoY to Rs 33373 crore. Micro loans (form 86% of advances) grew 47.3% YoY to Rs 28974 crore, while non micro loans grew 80.2% YoY NII growth continued to remain robust at 55.4% YoY to Rs 1077 crore led by AUM growth and strong margins at ~10.3%. Margins remained steady QoQ at 10.3%. Non-interest income grew 3.5% YoY to Rs 230 crore. The bank realised Rs 263 crore from sale of PSL certificate in H1FY19, out of which Rs 66 crore has been recognised in Q2FY19 while Rs 132.66 crore will be recognised in H2FY19E. Operating profit increased 46.9% YoY to Rs 874 crore Headline asset quality was steady QoQ with GNPA ratio at 1.29% & NNPA ratio at 0.69%. The bank disclosed it has exposure of Rs 388 crore to IL&FS group (1.2% of AUM), currently classified as standard Aided by higher NII growth & steady asset quality, PAT came in strong at Rs 487 crore in line with our estimate (up 47.3% YoY) Customer acquisition continued to remain robust with addition of 7.7 lakh customers in Q2FY19 taking total customer base to 1.44 crore (micro banking – 1.15 crore and non-micro – 29.4 lakh) The management reiterated that restriction on branch expansion by RBI, in lieu of reduction of promoter stake, will not materially impact balance sheet growth in the near term.
Outlook
Robust growth, better than banking margins and low cost to income still continue to remain strong attributes of the bank. Sustenance of higher margins at 9-10% and low CI ratio at ~34% by FY21E is seen enabling earnings growth at ~35% CAGR in FY19-21E. Exposure to IL&FS group remains near term risk. Factoring in the same, we revise our credit cost estimates upwards by ~30 bps in FY20E. Reduction in promoter stake, as per regulatory mandate, can be margin and RoA dilutive. Hence, we maintain our target multiple at 4.7x on FY21E ABV and arrive at our target price of Rs 650. We maintain BUY.
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