Brokerages are mixed on Bandhan Bank despite it impressed with profit growth in June quarter.
The Kolkata-based lender reported strong performance in Q1FY20 on the back of strong AUM growth, stable asset quality and a steady improvement in cost ratios.
The bank's profit in Q1 grew 45.6 percent YoY in June quarter despite higher provisions, and net interest income increased 36 percent with loan growth at 39.4 percent YoY, beating analyst estimates.
Asset quality also improved sequentially with gross and net non-performing assets falling 2bps each to 2.02 percent and 0.56 percent, respectively, in June quarter.
Here is what brokerages say about the stock:
Brokerage: Ambit | Rating: Sell | Target: Rs 309 | Return: -41.4 percent
The brokerage reiterated its sell call on the stock with a target price at Rs 309 after net interest margin compressed 24 bps QoQ as CASA declined 11 percent.
Brokerage: Kotak Institutional Equities | Rating: Sell | Target: Rs 500 | Return: -5 percent
A highly concentrated MFI book that is not well-diversified from a state or product perspective can result in volatile NPLs or a high loan-loss provision when there is a specific event in that state, Kotak warned.
The brokerage is yet to see diversification of the loan portfolio and the bank is dependent on Gruh Finance to lead this diversification. It believes that a higher cost of equity is needed to capture the risk to this business as the ability to predict timing and LGD is a big challenge.
Kotak forecasts 45 percent CAGR in AUM over FY2019-22E driven by strong traction in MFI loans. However, this includes the merger with Gruh Finance, which has been incorporated in models as of FY2020.
Brokerage: ICICI Securities | Rating: Buy | Target: Rs 770 | Return: 46 percent
Asset quality was stable with GNPA improving to 2.02 percent (ex-ILFS accounts, it was 1.11 percent). Credit costs came in slightly higher at 1.3 percent as the bank now provides 1 percent on its standard portfolio versus the regulatory requirement of 0.25 percent.
The bank now awaits approvals from NCLT for the final steps in its merger with GRUH Finance.
ICICI Securities said it continues to like the business dynamics of Bandhan and reiterates its buy rating. But it reduced the target price to Rs 770 from Rs 779 earlier.
Brokerage: JM Financial | Rating: Buy | Target: Rs 710 | Return: 35 percent
JM Financial continues to like Bandhan for management's delivery on asset quality across credit cycles (demonetisation, natural calamities, previous situations of political unrest), driven by its high touch model (weekly collections), strong focus on training its ground personnel and high vintage of the customer base. Hence it maintains its buy call with a target price at Rs 710.
The brokerage continues to believe the merged Bandhan-Gruh entity can deliver 4 percent return on asset and 25 percent return on equity in FY21.
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