KR Choksey has a "Accumulate" recommendation for Bandhan Bank, target price at Rs 200.

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KR Choksey maintained the "Accumulate" rating on Bandhan Bank with a target price of Rs 200. That target is down from Rs 217; it actually reflects the struggle that is still going in the space of micro finance. Well, after somewhat more recent results in the second quarter of FY25, its profit growth along with other metrics has indeed come through.

Q2 FY25 Consolidated Financial Highlights

NII :

Bandhan Bank delivered Net Interest Income of INR 29,483 mn for Q2 FY25, which increased by 20.7% YoY but was soft QoQ at -1.9%. This is roughly around 2% lower than the street estimate by KR Choksey. This has largely been interest yield pressure as well as a competitive environment. Yield on Advances and NIMs Yield on Advances grew by 40 bps in year-over-year terms to 13.7%, although it declined by 20 bps sequentially with interest rate shifts. Core NIMs for the period came in at 7.4%, growing by 20 bps year over year. Competitive strength is also one of its strengths in maintaining stable NIMs with industry challenges thrown its way.

Pre-Provision Operating Profit (PPOP):

The PPOP of Bandhan Bank saw a 17.2 per cent YoY growth at Rs 18,551 mln, whereas it reduced by 4.4 per cent QoQ. This, again, is in sync with estimates of KR Choksey, which also reiterates the operating strength of the bank while industry and macro headwinds prevail.

Net Profit: 

In Q2 FY25, net profit was reported at 30% YoY growth to INR 9,374 million largely led by the decline in provisions as the bank has reported a relatively stronger bottom line. Improvement in profitability undoubtedly reflects healthy strategic risk management combined with strong operating efficiency from the bank's end.

Revised EPS and Target Price

KR Choksey trimmed down the EPS estimate for FY26 by 2.9% for Bandhan Bank considering a higher credit cost amid higher risk portfolio related risks, especially for the EEB business segment. In this light, KR Choksey has lowered the target price to Rs 200 per share from the earlier estimate of Rs 217 per share. It has applied the Price-to-Adjusted Book Value (P/ABV) multiple of 1.2x on an adjusted book value of INR 166.8 per share for FY26. The new target works out to a possible upside of 8.2% over the current market price (CMP).

Industry Challenges and Growth Outlook

Microfinance industry risk is high and key concerns at Bandhan Bank have remained credit quality of the overall portfolio and its growth at EEB. Both the factors would look to be testing the quality as well as the trend in terms of growth, thereby having a bearing for Bandhan Bank. Lowered valuations multiple was taken from KR Choksey factoring in the volatility into near term but strong underpinning strategic approach has been taken at this juncture along with robust financial fundamentals underly "accumulate" recommendation by him.

Outlook

Rajesh KR Choksey has given a fair and balanced perspective by shifting the target to Rs 200 per share, based on an ABV valuation of INR 166.8 a share and considering a P/ABV multiple of 1.2x, and while well acknowledging the prospects but trying to factor in the sector-wide issues. Such a scenario works out an upside to the current levels of nearly 8.2 percent, and again, on this basis, the equity shares of Bandhan Bank shall be rated "Accumulate".

Investment Summary

Despite the slight moderation in the target price, the healthy financial performance of Bandhan Bank, which saw steady growth in NII and better profitability, makes it relatively comfortable within the industry. Investors seeking a well-balanced investment with measured growth outlook may find Bandhan Bank's shares worth consideration. With the potential upside and positive long-term fundamentals, KR Choksey's "Accumulate" recommendation further establishes the growth potential of Bandhan Bank as it navigates industry dynamics. All said and done, Bandhan Bank is a resilient player and KR Choksey gives it a cautious optimism rating of accumulation with an eye on probable gains as the bank continues to strengthen its footprint in a challenging market environment.