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Business News/ Markets / Stock Markets/  Bandhan Bank shares could re-rate as 'valuations attractive', up to 37% upside seen

Bandhan Bank shares could re-rate as 'valuations attractive', up to 37% upside seen

Bandhan Bank's Q3 is likely to be characterized by further NPL recognition, as per analysts

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Photo: iStock

Bandhan Bank’s pre-quarter release for Q3 FY23 shows a rise in collection efficiency of EEB loan to 98% in 3Q from 95% in 2Q & QoQ fall in 0-DPD EEB loan, which adds to recovery of 9.2 bn from CGFMU scheme & 4 bn as cash from sale of w/o loans to ARC in this quarter, highlighted Jefferies. 

“Improving asset quality trends should drive val re-rating; we see more over next 2-3 qtrs. Asset growth slowed to 14% YoY (17% in 2Q) and CASA (current account savings account) fell by 3% YoY. Valuations are attractive & could re-rate," the note stated. 

The brokerage house has a ‘Buy’ rating on Bandhan Bank shares with a target price of 340 apiece, implying a potential upside of over 37% from the current stock level.

Q3 is likely to be characterized by further NPL recognition, with stress flowing in from the restructured book and forward flow from the overdue bucket. Thus, Q3 will likely see upfronted credit cost impact (like Q2FY23), as per estimates by Elara Capital.

“The quarter will see two one-offs: 1) CGFMU recovery of INR 9.2bn, and 2) the sale of written-off assets of INR 89bn with realization in form of cash and SR. The impact of CGFMU will be reflected in lower GNPL but will not entail P&L impact. Meanwhile, as per the sale of assets, while the bank will have higher other income, it may potentially choose to mark down the entire SR pool and for the rest may end up creating contingent pool (as has been the stance of management about using windfall gains to create buffer pools). So, in a nutshell, both these will be net neutral P&L impact," they said.

Overal, analysts expect the lender's loan growth to be in the range of 3-4% QoQ, largely driven by growth in the non-MFI segment. “While higher interest income reversal will impact net interest margin (NIM), the impact will be lower QoQ, thereby seeing some NIM benefit QoQ."

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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Published: 09 Jan 2023, 01:22 PM IST
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