Bandhan Bank is in focus as its share price jumped 6% in intraday trade.
The domestic brokerage house Motilal Oswal, in its latest note, has reiterated a ‘Buy’ rating on Bandhan Bank. The brokerage has set a target price of Rs 175. This implies an upside potential of about 23% from current levels.
Let’s take a look at the key reason why the brokerage is bullish on the stock and what is the rationale behind it –
Motilal Oswal on Bandhan Bank: A long NPA cycle and its impact
Bandhan Bank has spent several years dealing with a stretched non-performing asset cycle, which weighed heavily on growth and profitability.
The brokerage house noted, “Bandhan Bank has undergone a long-drawn NPA cycle, which significantly impacted its growth and profitability profile.”
Motilal Oswal on Bandhan Bank: Q3 numbers – Pressure remains, but trends are mixed
For the December quarter, Bandhan Bank reported profit after tax of around Rs 210 crore, down sharply on a year-on-year basis due to higher provisions, though it improved sequentially.
According to the brokerage report, “Q3 PAT at Rs 210 crore was down 52% YoY but up 84% QoQ due to higher-than-expected provisions.”
Net interest income declined on both a year-on-year and quarter-on-quarter basis, coming in broadly in line with estimates. However, there was a modest improvement in margins.
As per the brokerage report, “NIMs improved by 6bp QoQ to 5.9%.”
Operating expenses remained largely steady, though provisions were slightly higher than expected as the bank chose to remain conservative.
Motilal Oswal on Bandhan Bank: Asset quality shows signs of easing
One of the more closely watched aspects of the quarter was asset quality. Gross non-performing assets and net non-performing assets declined sequentially, partly due to the sale of bad loans. Provision coverage ratio remained above 70%, signalling continued caution.
The brokerage highlighted that fresh slippages eased during the quarter, even though there was a temporary increase in special mention accounts due to holiday-related disruptions.
According to the brokerage report, “Management does not expect elevated provisioning to continue ahead, as asset quality trends improve.”
Motilal Oswal on Bandhan Bank: Growth outlook and margin trajectory
Loan growth remained uneven, with the microfinance-linked book contracting, while non-micro credit segments showed stronger growth.
Motilal Oswal expects margins to improve gradually as funding costs decline. As highlighted in the management commentary, “CoF will reduce going ahead, leading to NIM improvement.”
Motilal Oswal on Bandhan Bank: Valuation and the buy call
Motilal Oswal believes valuations now factor in much of the past stress. The brokerage expects a gradual improvement in profitability metrics, estimating return on assets of 1.3% to 1.5% over financial years 2026-27 and 2027-28, compared with about 0.6% in financial year 2025-26.
Conclusion
The brokerage in its report noted, “Valuations, after five years of de-rating, look reasonable, and accordingly, we upgrade our rating to ‘Buy’ with an unchanged target price of Rs 175.”
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.