Motilal Oswal initiates buy on Bandhan Bank; share price jumps 5%

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Shares of private sector lender Bandhan Bank gained 4.8 percent intraday on March 5 after brokerage house Motilal Oswal initiated coverage with a buy call on the scrip, citing strong return ratios and likely sustainable growth by diversification.

"The bank has demonstrated a strong track record in growing its balance sheet/earnings and maintained a robust market share/cost leadership with its low-cost DSC network. It has also deftly handled external events like demonetization/GST, wherein it restored the normal delinquency rate within three months," said Motilal Oswal.

The brokerage estimates loan book/earnings CAGR of 26/24 percent over FY20-22, driving industry-leading return on assets (RoA) / return on equity (RoE) of 3.7/23.4 percent for FY22.

"With its share of volatility, Bandhan Bank offers a great long-term investment opportunity as the stock has corrected significantly. Valuations appear reasonable and reflect near-term risks emanating from Assam," said the brokerage which initiated coverage with a buy rating and target of Rs 500.

The merger with GRUH has helped improve product diversification, reduce concentration risk and increase cross-sell opportunities (around 68 percent of GRUH's book has a ticket size of less than Rs 10 lakh), it added.

The stock was quoting at Rs 416.90, up Rs 16.50, or 4.12 percent on the BSE at 1423 hours IST.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.