Bandhan Bank Stock Gains Most Among Peers After BofA Initiates Coverage

Bandhan Bank Ltd. became the top performer on the Nifty Bank after BofA Securities initiated coverage on the private lender with a bullish investment recommendation.

“We find the best-in-class growth and return profile eminently sustainable over the medium-term — underpinning premium valuations and a superior risk-reward,” the global financial services provider said in a note, as it initiates coverage with a ‘buy’ rating and a price target of Rs 550 apiece — a potential upside of 35.5% from Thursday’s closing price. “As macro and asset quality outlook continue to improve, we expect further re-rating of valuation multiples.”

“Bandhan’s dominant presence and superior execution in its core business of MFI (microfinance institution) offer a competitive advantage in its ability to fund its growth ambition in new aligned business segments and geographical expansion,” BofA analyst Anand Swaminathan said in the note.

Bandhan Bank’s core MFI business comprises 65% of its overall loan book, which according to BofA is one of the biggest and best in India.

This comes as microlenders saw their asset quality deteriorate over the past year on lower repayment and collection levels during the pandemic.

“Over the past few cycles, the [Bandhan] bank has also successfully diversified its MFI book outside east India,” BofA’s note said. The rest of India business now contributes to less than 20% of its MFI book.

BofA also sees key growth potential for the bank in its retail and SME verticals, which are closely aligned to its MFI business. “The focus in the SME business is on capturing wallet share of its vintage MFI customers as they grow their businesses. Retail focus centres around micro-housing and other retail asset products.”

Shares of Bandhan Bank gained as much as 4.1% on Friday to Rs 422 apiece. The stock is up for the second straight day. Of the 25 analysts tracking the company, 21 have a ‘buy’ rating and two each suggest a ‘hold’ and a ‘sell’. The average of Bloomberg consensus 12-month price target implies an upside of 3%.