Buy Bandhan Bank; target of Rs 650: ICICI Direct
ICICI Direct’s research report on Bandhan Bank
Led by unrest in Assam (16.4% of MFI book), collection efficiency in the state declined to below 80%. It revived to 93.6% in December 2019 (earlier run rate of 97-98%). The bank has not seen substantial slippages yet from the micro finance book. However, it has provided additional provision of Rs 200 crore in lieu of the exposure. The asset quality of the merged entity saw marginal deterioration with ~17 bps QoQ increase in GNPA ratio at 1.93%, primarily led by change in NPA recognition norms for Gruh Finance book.
Therefore, we downgrade our estimate marginally and expect earnings to grow at 26% CAGR in FY20-22E. Accordingly, we revise our target price to Rs 650/share, valuing the stock (post merger) at 19x FY22E EPS (4.5x FY22E BV). We maintain BUY rating.
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