Buy Bandhan Bank; target of Rs 431 KR Choksey

KR Choksey's research report on Bandhan Bank

Net interest income increased 25.8% YoY/6.2% QoQ to INR 19.2 bn and NIMs reported at 8.0% in Q2FY21, contracted 15 bps sequentially and 20 bps on YoY basis. Non-interest income reported at INR 3.8 bn (6.0% YoY/-1.3% QoQ) for the quarter. As a result, total Income increased 22% YoY/4.8% QoQ to INR 23 bn vs INR 22 bn in Q1FY21 and INR 18.9 bn in Q2FY20. Pre-provision profits grew 24.5% YoY/2.7% QoQ to INR 16.3 bn backed by a growth in topline performance. However, cost to income ratio reported at 29.4% for the quarter expanded 145bps sequentially where it contracted by 144 bps on YoY basis. The bank has provided provisions worth INR 3.95 bn which includes INR 3 bn of additional provisions for COVID-19. The bank has made aggregate provisioning of INR 20.9 bn. Gross NPA reported at 1.2% lower by 56 & 23 bps on YoY/QoQ basis, respectively. Provision coverage ratio stood at 70%. Net income for the quarter stood at INR 9.2 bn (-5.3% YoY/+67.3% QoQ) due to lower than expected provisions for the quarter. Overall collection efficiency has reached ~93% for Oct’20 month; for EEB (micro banking)/commercial banking/housing finance segments has reached 91%/98%/98% in terms of value, respectively. On an average 95% of EEB borrowers have started repayments in the month of Oct’20.

Outlook

We maintain our BUY rating for Bandhan bank. It is currently trading at P/ABV multiples of 3.0x/2.5x on FY21/22E adjusted BV/share. We assign P/ABV multiple of 3.58x to FY22E adjusted BV of INR 120.2/share to arrive at a target price of INR 431/ share.

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More