Buy Bandhan Bank, target Rs 763: ICICI Securities

ICICI Securities has a buy recommendation on Bandhan Bank with a target price of Rs 763.

The current market price of Bandhan Bank is Rs 589.10.

Time period given by the brokerage is one year when Bandhan Bank price can reach the defined target.


Investment rationale by the brokerage-
Advantages vs. Challenges – Sensitivity analysis results: Considering these challenges we attempt to quantify them by running a sensitivity analysis on three key variables - loan growth, CASA mix and credit costs. Results show that RoA is in the range of 1.4-4.3 per cent and RoE in the range of 14-44 per cent. On a probability weighted basis fair RoA is 3.1 per cent and RoE 32 per cent leading to our target price of Rs 763 implying an upside of 32 per cent.

Earnings outlook: Considering the post-Gruh merged entity, we look for loan growth of 31 per cent CAGR from FY19-21E with RoA improving from 3.2 per cent to 3.5 per cent as implying PAT growth of 37 per cent CAGR in that period. We remain fairly conservative on the prospects of Bandhan meaningfully improving the mix of its non-microlending business (other than Gruh) and also factor-in a lower increment to CASA mix versus history. Additionally, we do not factor-in significant synergies with Gruh other than replacing its liabilities with bulk deposits in FY21E.

Valuations and target price: The stock trades at a P/E of 28x and P/BV of 5.3x on a 12 month forward basis, below its 1-year trading history average of 5.5x. Based on our probability weighted RoA of 3 per cent and implied sustainable RoE of 32 per cent we value the stock at a P/B multiple of 5.7x resulting in our target price of Rs 763 representing an upside of 32 per cent.