ICICI Direct is bullish on Bandhan Bank has recommended buy rating on the stock with a target price of Rs 575 in its research report dated January 11, 2019.
ICICI Direct's research report on Bandhan Bank
Absolute GNPA surged more than doubling to Rs 8310 crore, led by prudent recognition of entire Rs 388 crore of exposure to IL&FS group. Accordingly, GNPA ratio increased ~112 bps QoQ to 2.41% Bank has made full provision of ~Rs 385 crore. This has kept overall credit cost higher, which has impacted growth in profitability. Therefore, PAT came in at Rs 331 crore, up 10% YoY. It had reversal of MTM provision of ~Rs 96 crore in Q3FY19. Customer acquisition remained robust with 9.22 lakh customers added in Q3FY19 (7.7 lakh in Q2FY19) taking the total customer base to 1.53 crore (micro banking – 1.2 crore and non-micro – 31.8 lakh) AUM growth continued to remain robust at 46.1% YoY to Rs 35599 crore. Micro loans (~86% of AUM) grew 44% YoY while non micro loans grew 91% YoY The operational performance continued to remain robust with NII growth of 47.3% YoY to Rs 1076 crore and 48% YoY traction in other income. The bank has realised Rs 275.8 crore of PSLC income in 9MFY19, of which Rs 73.28 crore pertains to Q3FY19. Operating profit increased 57% YoY to Rs 900 crore vs. our estimate of Rs 863 crore Deposit accretion continued to remain robust at 32.9% YoY to Rs 34639 crore, with robust traction in CASA at 70.7% YoY to Rs 14342 crore. Hence, the CASA ratio has increased to 41.4%.
We believe that though the merger is short-term negative due to high dilution, it will be positive from a longer term perspective on a core business basis. We value the merged entity at 5.5x revised BV of Rs 104. Hence, we maintain our target price at Rs 575 per share, maintaining our BUY recommendation on the stock. One can gradually accumulate from a two to three-year perspective.
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