Buy Bandhan Bank; target of Rs 431 KR Choksey

KR Choksey is bullish on Bandhan Bank has recommended buy rating on the stock with a target price of Rs 431 in its research report dated November 03, 2020.

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November 09, 2020 / 13:39 IST

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KR Choksey's research report on Bandhan Bank

Net interest income increased 25.8% YoY/6.2% QoQ to INR 19.2 bn and NIMs reported at 8.0% in Q2FY21, contracted 15 bps sequentially and 20 bps on YoY basis. Non-interest income reported at INR 3.8 bn (6.0% YoY/-1.3% QoQ) for the quarter. As a result, total Income increased 22% YoY/4.8% QoQ to INR 23 bn vs INR 22 bn in Q1FY21 and INR 18.9 bn in Q2FY20. Pre-provision profits grew 24.5% YoY/2.7% QoQ to INR 16.3 bn backed by a growth in topline performance. However, cost to income ratio reported at 29.4% for the quarter expanded 145bps sequentially where it contracted by 144 bps on YoY basis. The bank has provided provisions worth INR 3.95 bn which includes INR 3 bn of additional provisions for COVID-19. The bank has made aggregate provisioning of INR 20.9 bn. Gross NPA reported at 1.2% lower by 56 & 23 bps on YoY/QoQ basis, respectively. Provision coverage ratio stood at 70%. Net income for the quarter stood at INR 9.2 bn (-5.3% YoY/+67.3% QoQ) due to lower than expected provisions for the quarter. Overall collection efficiency has reached ~93% for Oct’20 month; for EEB (micro banking)/commercial banking/housing finance segments has reached 91%/98%/98% in terms of value, respectively. On an average 95% of EEB borrowers have started repayments in the month of Oct’20.

Outlook

We maintain our BUY rating for Bandhan bank. It is currently trading at P/ABV multiples of 3.0x/2.5x on FY21/22E adjusted BV/share. We assign P/ABV multiple of 3.58x to FY22E adjusted BV of INR 120.2/share to arrive at a target price of INR 431/ share.

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