Bandhan Bank share price: JM Financial maintains BUY rating with target of Rs 535

JM Financial recently interacted with the management of Bandhan Bank to get an update on the business environment. Microloans collections in Assam continue to languish at Jan-21 levels though haven’t dropped further. The key state of West Bengal continues to witness gradual improvement and is now running close to national averages (of 90%+).

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With state assembly elections now underway in both the key states of Bandhan Bank, JM Financial believes the fact that collections have been on a gradual uptrend is a key positive. Asset quality in non-micro products remains steady with minor restructurings in erstwhile Gruh’s mortgage portfolio. Importantly, as economic activity has improved, disbursements have picked up (given that Q4 is Bandhan’s biggest contributor w.r.t. disbursements). Q4 FY21 credit costs will remain elevated (our estimate at 7.5%) given crystallization of delinquencies and we expect only a minor spillover in FY22E.

FY22E onwards, we see Bandhan resuming its steady state business trajectory and industry-leading RoA profile with three critical events (viz. impact of Assam protests, Covid19 shock and WB assembly elections) behind with Bandhan emerging relatively unscathed.

Further, JM Financial sees:

a)     share of individual microloans

b)    acceleration in mortgages driving growth in the next couple of years for Bandhan

JM Financial maintains BUY rating on the stock with a target of Rs 535 (valuing the bank 3.3x P/BV, 15x P/E FY23E).

The Nifty opened gap up post which it managed to sustain at higher levels, reversing its previous session’s selling pressure. Advance/decline ratio was in favour of bulls. As per options data, 14500 Put option has substantial OI, which should provide immediate support. Nifty futures ended at a premium of 101 points while IV was down by 9.93%. The major Put base is at 14500 strike with 20 lakh shares while the major Call base is at the 14700 strike with 22 lakh shares.

The Bank Nifty opened on a positive note and thereafter remained sideways for the rest of the session. Healthy buying was seen in both private and PSU banks. According to option, 33500 Call option has substantial OI. If it manages to sustain these levels then we may see an extension of the up move towards 34000.