Shares of Bandhan Bank were buzzing in trade with a 5 percent surge in stock price on February 21 after global brokerage firm CLSA upgraded the stock to a 'high-conviction outperform', foreseeing a massive 61 percent upside potential.
The brokerage pegged a price target of Rs 220 for the stock, largely backed by the lender's outperformance over peers in the current MFI (Micro Finance Institution) cycle. The MFI sector has been grappling with persistent challenges and obstacles over the past five-six months, resulting in a substantial deterioration in asset quality.
Looking ahead, CLSA believes the Indian microfinance space will go from bad to less bad in a couple of quarters and from less bad to normal by Q2 FY26. In such a backdrop, CLSA sees Bandhan Bank as a play on the MFI recovery cycle, driven by its gradual migration to secured loans.
As for the company's gradual gravitation towards secured lending, CLSA feels the company would be in no need for extra capita and also offers cheap multiples, making it a good buy opportunity.
At 09.58 pm, shares of Bandhan Bank were trading at Rs 142.19 on the NSE.
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Further, the management's comments of not anticipating any legacy baggage going ahead, further bolstered sentiment for CLSA.
The brokerage noted that Bandhan Bank's asset quality cycle has outperformed its peers and expects the bank to achieve a Return on Assets (RoA) of 1.5-1.6 percent in the medium term.
Bandhan Bank reported a 42 percent decline in its Q3 net profit, coming at Rs 426 crore for the December quarter as compared to Rs 733 crore in the same period last year. Net Interest Income (NII) rose 12 percent year-on-year to Rs 2,830 crore, up from Rs 2,525 crore in Q3FY24.
"Bandhan Bank’s third-quarter performance reflects sustainable growth, with a strong focus on risk management and compliance. As we strengthen our loan book, enhance technological capabilities, and refine our products, we are well-positioned for the next phase of growth as Bandhan Bank 2.0," MD & CEO Partha Pratim Sengupta said in an exchange filing.
Asset quality also improved, with gross NPA falling to 4.7 percent in Q3FY25 from 7 percent a year ago, while net NPA declined to 1.3 percent from 2.2 percent. Net Interest Margin (NIM) stood at 6.9 percent, down from 7.2 percent in Q3FY24, while provisions surged to Rs 1,376 crore, up from Rs 684 crore in the previous year.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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