Hong Kong-based brokerage CLSA maintained its 'high conviction outperform' rating on lender private lender Bandhan Bank's shares after its meeting with the management.
The brokerage has a target price of Rs 220 per share of the bank, indicating an upside potential of almost 50 percent from the previous session's closing price.
At 1.50 pm, Bandhan Bank shares were trading higher by around 0.8 percent at Rs 148.25 each, after erasing a large portion of gains from the morning session, amid a jittery market sentiment.
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Collection efficiency in the microfinance segment has improved over the past two months, reducing overdue formations quarter-on-quarter. While new regulatory limits on lenders may cause short-term disruptions, normal operations are expected by Q3FY26.
Bandhan Bank plans to expand secured assets and enhance technology and audit systems by FY27. A recent partnership with Salesforce will introduce a faster loan origination system across 1,700 branches next quarter.
Further, the bank's management aims for a RoA (return on assets) of 1.8-2 percent by FY27, which is more optimistic compared to CLSA's projection of 1.5 percent.
In February, CLSA upgraded the Bandhan Bank to a 'high-conviction outperform', 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.
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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