Brokerages see up to 53% upside in Bandhan Bank share despite weak Q1 earnings, here's why

Bandhan Bank share rose nearly 6% today despite the lender reporting a weak set of Q1 earnings. Brokerages were upbeat on the prospects of the lender and saw recovery in earnings from the pandemic effect in a short span of time.

In fact, Goldman Sachs gave a buy rating to the stock with a target price of Rs 447, 53.45% upside against the previous close of Rs 291.30.

Others also saw the bank's financials recovering fast from the pandemic blues which pushed the stock higher today.

Share of Bandhan Bank gained up to 5.63% to Rs 307.7 against previous close of Rs 291.30 on BSE.  

The large cap stock has gained after 2 days of consecutive fall. Bandhan Bank share is trading higher than 5 day moving averages but lower than 20 day, 50 day, 100 day and 200 day moving averages.

The stock has fallen 25.38% since the beginning of this year and lost 13.08% in one year.

Market cap of the firm rose to Rs 48,489 crore on BSE.

Total 9.30 lakh shares changed hands amounting to turnover of Rs  28.14 crore on BSE.

The large cap share hit a 52 week high of Rs 430.25 on December 11, 2020 and 52 week low of Rs 251.40 on September 25, 2020.

The lender reported a 32 per cent decline in June quarter net profit at Rs 373.08 crore

Earnings took a hit after the second wave of the pandemic affected collections in its core microlending segment, impacting asset quality and multiplying provisions.

Gross slippages in Q1 stood at Rs 1,661 crore against Rs 3,500 crore on a pro-forma basis in the preceding March quarter, which took the gross non performing assets ratio to 8.18% against 1.43% in the year-ago period and quarter ago's 6.81 per cent.

CLSA gave a target price of Rs 300 for the stock and said NPAs rose by only 1.4% of assets under management (AUM) QoQ.  However, incremental microfinance institutions  restructuring and overdue loans increased rose to 15% of AUMs which needs to be looked in context of severe Covid disruption

Kotak Inst Equities has given a add call to Bandhan Bank stock. The earnings declined primarily due to high provisions (up 60% yoy). Impaired ratios are currently high with gross non performing loans at 8% and restructured loans at 6% following 2nd wave However, the bank is likely to see an improvement in second half of FY22. The brokerage gave a target price of Rs 335.

Bernstein said Q1 earnings show was disrupted by pandemic. The lenders core markets (Assam & WB) entered and exited lockdowns later than rest of India. The bank used multiple levers to protect from asset quality shocks and gave detailed disclosures on its strategy. It gave a target price of Rs 420 for the share.

Goldman Sachs said the bank reported an operationally strong quarter with pre-provision operating profit 4% ahead of estimates. Growth and most importantly, asset quality were majorly impacted due to strict local lockdowns. The brokerage maintained a buy rating, but removed the stock from its conviction list.