Bandhan Bank shares surge 9% after analysts cite favourable ‘risk-reward’

Shares of Bandhan Bank Ltd. were trading with gains of as much as 9% on Monday, October 28, after the private sector lender reported its earnings for the September quarter.

Global brokerage firm Nomura has upgraded Bandhan Bank shares to ‘Neutral’ with a price target of ₹180 per share. Despite a steady Q2 performance amid a tough environment, concerns persist over the Microfinance institution (MFI) sector’s outlook.

While valuations are reasonable, Nomura maintains that caution is warranted. The bank has shown healthy growth in loans and deposits, though asset quality has declined due to increased slippages.

Macquarie has rated Bandhan Bank as ‘Outperform’, with a price target of ₹250 per share. Although the second quarter profit fell short due to higher operating expenses, this was partly offset by lower credit costs.

Key focus remains on potential stress in the loan pool, with management targeting 1.8-2% credit costs for FY25.

Growth is expected to be driven by secured segment, though the net interest margin (NIM) could be pressured.

The current valuation offers a favorable risk-reward outlook given growth and RoA prospects, Macquarie said in its research note.

Jefferies has a ‘Buy’ rating on Bandhan Bank, with a price target of ₹240 per share. The brokerage said the company’s Q2 profit exceeded estimates, supported by resilient MFI loan quality.

This reinforces confidence in the bank’s ability to outperform peers in this MFI cycle, benefiting from a conservative cooling-off period and a high proportion of unique borrowers.

Although slippages and overdue loans have increased, the impact on earnings is manageable.

CLSA has rated Bandhan Bank as ‘Outperform’, with a target price of ₹240 per share. Asset quality is better than expected, with stable slippages, which is a positive for the microfinance business. Loan growth is led by the secured loan segment.

Despite concerns of “kitchen-sinking,” the recent audit and proactive stress recognition over FY23 and FY24 offer reassurance.

Goldman Sachs has a ‘Neutral’ recommendation on Bandhan Bank, with a price target of ₹226 per share. While operating profit missed expectations, credit costs were better than anticipated, with lower slippages and improved SMA1/2 levels year-on-year, resulting in a 7% beat on profit.

Investors will likely monitor MFI performance in the coming quarters, stable asset quality in other retail segments, and profitability metrics alongside steady loan growth as the sector normalises.

Domestic brokerage house Kotak Institutional Equities has a ‘Buy’ rating on Bandhan Bank, and a price target of ₹250 per share.

The bank reported a healthy 30% on-year earnings growth, led by 17% on-year operating profit growth and about 5% on-year decline in provisions. Slippages were 3.5%, while credit cost was 2%.

The early warning indicators suggest that Bandhan’s portfolio could be resilient in this MFI cycle, largely due to its presence in states that are showing relatively lower stress and stringent underwriting in recent years.

Kotak finds the risk-reward favorable to maintain a ‘Buy’ rating with a fair value of ₹250 per share.

Bandhan Bank shares are currently trading 9.27% higher at ₹183.80. The banking stock touched an intraday high of ₹184.48 today.