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Emkay maintains buy on Bandhan Bank, sees 32% upside in 12 months despite reduced target price

Emkay maintains buy on Bandhan Bank, sees 32% upside in 12 months despite reduced target price

Emkay maintains buy on Bandhan Bank, sees 32% upside in 12 months despite reduced target price
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By Ajay Vaishnav  Sept 16, 2019 3:49:03 PM IST (Published)

Shares of Bandhan Bank quoted at Rs 450 apiece, lower by over a percent on NSE on Monday.

Emkay has maintained 'buy' rating on Bandhan Bank due to Gruh merger, asset diversification and strengthening liability base. The brokerage, however, has reduced the long-term target price to Rs 600 from Rs 660, factoring in a marginal earnings cut.

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The target price of Rs 660 per share still has an upside potential of almost 32 percent from the current market price.
Shares of Bandhan Bank quoted at Rs 450 apiece, lower by over a percent on NSE on Monday. The stock opened at Rs 454, slightly lower from its Friday's close of Rs 455.15.
So far this year, Bandhan Bank shares have corrected by over 18 percent, while the one-year return too is negative with the stock declining by over 28 percent.
"We like Bandhan due to its remarkable liability ramp-up, asset diversification strategy and sustainably higher RoA/RoEs. The bank has a good track record of managing cyclical/external disruptions due to its strong customer connect, credit monitoring/recovery mechanism; however, we choose to remain watchful in the near term. We maintain Buy rating and our OW stance in sector EAP, but reduce our TP to Rs600 from Rs660, factoring in a marginal earnings cut (1.6% in FY21) and also multiple cut (4.5x FY21E standalone ABV from 5x). Key risks are slower growth/higher NPAs in the MFI portfolio, and the promoter stake dilution after Gruh merger (from 61% to 40%) to meet regulatory norms," analysts at Emkay wrote in a research report on Friday.
The merger with Gruh is expected to be completed in one-two quarters, which will help the bank to reduce its share in micro-finance to 62 percent, while the housing finance share will increase to 40 percent over the next 2-3 years, the report said.
The Bandhan Bank had announced merger with Gruh Finance in January earlier this year, which would bring down promoter holding to about 61 percent from the existing level of 82.3 percent.
Gruh Finance is the affordable housing finance arm of HDFC ltd and was taken over by Bandhan Bank in a share-swap deal.
Bandhan Bank maintains a strong deposit profile (96 percent of AUM) remains the key differentiator among small finance banks, it added.
The bank's focus on mass market, salaried as well as now NRI customers along with a better deposit rate offering, after the rate cut by large banks, should further aid deposit mop-up, the report further added.
Bandhan Bank on July 19 reported an over 45 percent year-on-year rise in net profit to Rs 701.14 crore in the June quarter.
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