On Wednesday, BofA Securities revised its stance on Bandhan Bank Ltd (NS:BANH). (BANDHAN:IN) stock, raising its rating from Neutral to Buy and setting a new price target of INR220.00. The upgrade reflects the bank's strategic shift and improved business risk profile following a challenging period.
The analyst at BofA Securities highlighted that Bandhan Bank has been in a phase of strategic transformation, focusing on diversifying its business segments and expanding geographically. This shift comes after the bank faced several challenges in recent years. The bank's efforts to de-risk its business mix are expected to yield positive results, particularly in comparison to its peers.
According to the analyst, Bandhan Bank is currently navigating through a microfinance institution (MFI) cycle. Despite the sector's issues, the bank's asset quality is anticipated to outperform that of its competitors. This expectation is based on the bank's conservative approach during this cycle and the higher proportion of customers who only borrow from Bandhan.
The valuation of Bandhan Bank was also a key point in the upgrade, with the bank's current price-to-book (PB) ratio at 1.1x and the price-to-earnings (PE) ratio at 8x. These metrics suggest that the market has low expectations for the bank's growth and return on equity (ROE) improvement. The analyst believes that even with conservative estimates of 14-15% ROEs and 13-15% growth, Bandhan Bank presents a favorable risk-reward scenario over the next 12 months.
Furthermore, Bandhan Bank is poised to benefit from the easing of interest rates due to its balance sheet composition. The potential gains from a rate cut cycle were cited as an additional factor supporting the optimistic outlook for the bank.
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