Buy Bandhan Bank; target of Rs 425: Emkay Global Financial
Emkay Global Financial is bullish on Bandhan Bank has recommended buy rating on the stock with a target price of Rs 425 in its research report dated January 06, 2020.
January 08, 2021 / 03:20 PM IST
Emkay Global Financial's report on Bandhan Bank
Bandhan Bank has reported healthy AUM growth of 23% yoy/5% qoq to Rs802bn (provisional), which we believe could primarily be driven by better disbursement trends in MFI and mortgages. In our view, Q4 is a seasonally strong quarter for MFI players and Bandhan should also see continued acceleration in growth. Deposits grew 30% yoy/8% qoq to Rs711bn, led by strong traction in CASA deposits. CASA ratio improved sharply by 462bps qoq to 42.8% (34% in Q3FY20), which is a positive surprise. Deposits stand at 89% of AUM vs. 84% in Q3FY20. Retail deposits grew 38% yoy/13% qoq and are now 81% of overall deposits vs. 76% in Q3FY20. This highlights the bank's strategic focus on building a strong retail deposit franchise, which facilitates asset diversification into secured businesses without much impact on margins. Bandhan has not provided update on asset quality, but we expect collection efficiency to trend well, barring some hiccups in Assam due to recent legislation and ensuing elections. The suburban train service too has resumed in WB and collection efficiency in dependent borrowers should gradually improve. The bank has strategically created a strong provisioning buffer (230bps) to absorb any asset quality shocks. Apart from the outlook on asset quality in the wake of ensuing elections in key states like Assam/WB, we believe that investors would be keen to understand the promoters’ plan to diversify into para-banking activities.
We have a long-term Buy rating on Bandhan Bank, given its strong liability profile, asset diversification strategy and ability to manage external disruptions given its strong core profitability, provisioning and capital buffers.
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