JM Financial
Bandhan Bank (Buy)
CMP: ₹424.5
Target: ₹750
We travelled across two of the most troubled microloan districts in Assam to have independent checks on collection trends and impact on microloan portfolios. Our channel checks suggest that while collections have improved from December 19 levels, they still remain well below normal, with sizeable variation across players. CAA-driven issues continue to dominate headlines, and had made matters worse for collections which were already impacted due to focussed anti-MFI protests. Problems continue to be concentrated in the northern-region of the State and so far have remained confined to these districts against fears of State-wide contagion.
While concerns regarding overleveraging and the protests in Upper Assam have resulted in a sharp reduction in Bandhan’s stock price, we believe CMP offers a healthy risk reward for RoEs of 27 per cent/ 28 per cent over FY20/21E. We believe Bandhan’s long-standing track record of maintaining asset quality in the region and inherent franchise strengths (customer loyalty, high-touch model) should help it navigate the current challenging environment. Maintain ‘buy’ with unchanged Target Price of ₹750.