*Stock Watch*
Premium: *Bandhan Bank*
Dated 25 January 20
*(BSE Code: 541153) (CMP: Rs.481.5) (FV: Rs.10)*
Incorporated in 2014, Kolkata-based Bandhan Bank is a subsidiary of Bandhan Financial Holdings Ltd providing commercial banking services in India. It operates through four segments: Treasury, Retail Banking, Corporate/Wholesale Banking and Other Banking Business. It offers savings and current accounts, fixed deposits, retail loans, term deposits, personal and gold loans, MSME loans, small enterprise loans, microloans for home-based businesses and agriculture loans. In addition, it invests in sovereign securities and trading operations, offers liability products, card services, internet and mobile banking, ATM and NRI services. It also distributes third party products. It operates 986 bank branches, 3,014 doorstep service centers and 481 ATMs.
Led by the unrest in Assam, which forms 16.4% of the Bank’s MFI (micro finance institutions) book, collection efficiency in the state declined to below 80%. However, it revived to 93.6% in December 2019 (earlier run rate of 97-98%). The bank has not seen substantial slippages yet from the MFI book. However, it has provided additional provision of Rs.200 crore in lieu of the exposure. *The asset quality of the merged entity saw marginal deterioration with ~17 bps QoQ rise in the GNPA (gross non-performing assets) ratio at 1.93%, primarily led by a change in NPA recognition norms for Gruh Finance book.* AUM (assets under management) of the merged entity grew 83.8% YoY to Rs.65456 crore. Excluding Gruh Finance, loan growth stood at 33% YoY, slightly lower compared to the previous run-rate.
Traction in micro finance (~61% of merged AUM) was a tad lower compared to the previous run-rate at 30% YoY to Rs.40100 crore. However, growth in the non-micro finance book (excluding Gruh Finance) continued to remain strong at 54% YoY. Customer acquisition continued to remain healthy YoY as the bank added ~7.3 lakh in Q3FY20 (10 lakh customers in Q2). Accordingly, total customer base was at 1.9 crore. Led by margin contraction at 7.9% and muted sequential growth, NII (net interest income) growth remained tepid at 0.5% QoQ to Rs.1540 crore. Operating expenses were slightly higher led by one-time accounting change owing to the merger. Earnings came in at Rs.730 core, dented by additional provision of Rs.200 crore in the quarter. Deposit accretion remained healthy at 58.5% YoY to Rs.54908 crore, with focus on low cost deposit at 34.3% of the total deposit.
*Technical Outlook*: The Bandhan Bank share has formed *a falling wedge pattern* on the daily chart and looks good for medium-term investment. Any correction in this stock is a good buying opportunity. The stock trades below all important moving averages like the 200 DMA level on the daily chart.
Start accumulating at this level of Rs.481.5 and on dips to Rs.455 for medium-to-long term investment and a *possible price target of Rs.530+ in the next 6 months.*