Buy Bandhan Bank; target of Rs 300: ICICI Direct

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ICICI Direct's research report on Bandhan Bank

Bandhan Bank reported a steady performance with healthy operating profits. However, additional provision of Rs 690 crore, related to Covid-19, impacted earnings. On asset quality, absolute GNPA declined 16% QoQ to Rs 993 crore (including Rs 385 crore related to IL&FS). Accordingly, GNPA ratio dipped ~45 bps to 1.48% while NNPA ratio improved ~23 bps to 0.58%. Overall collection efficiency has been healthy at 98.5-99% as of March 2020. Given emergence of Covid-19, the bank parked contingent provision of Rs 690 crore in Q4FY20 (includes Rs 64 crore under regulatory requirement). Including Rs 310 crore of outstanding standard asset provision, overall provision is at Rs 1000 crore i.e. ~1.5% of AUM.

Outlook

Return ratios are expected to dip compared to earlier period but still remain healthy with RoA at 2.5% and RoE at ~18%. We revise our target price to Rs 300 per share, valuing the stock (post merger) at ~11.7x FY22E EPS (~2.6x FY22E BV). We maintain BUY rating on the stock.

For all recommendations report, click here

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