INSUBCONTINENT EXCLUSIVE:
JM Financial has a buy call on Bandhan Bank with a target price of Rs 650.
The current market price of Bandhan Bank is Rs 527.30.
Time
period given by the brokerage is one year when Bandhan Bank price can reach the defined target.
Investment rationale by the
brokerageSingle-lender relationship key to asset quality: Management believes in being a sole lender for its borrowers (c.70-75 per cent
borrowers have loans exclusively from Bandhan) as opposed to other lending institutions wherein the borrower has relationship with multiple
Bank believes this enables it to leverage customer relationships when it comes to collections and is one of the cornerstones of its
thought-process towards asset quality
While disbursement ticket sizes for other institutions is typically lower than Bandhan (Rs 25k for NBFC-MFIs vs Rs 60k for Bandhan),
lenders have loans from multiple institutions
The average ticket size of outstanding loans is c.Rs 35k for Bandhan vs c
The average cycles completed (a cycle is completed when a loan disbursed by the bank is fully repaid by the customer and typically takes
Bandhan has not witnessed any significant asset quality pressures in the past (even during AP crisis, demonetisation), which makes us
believe that the higher vintage should provide further comfort on asset quality.
Bank to reduce loan book concentration profile: Management
expects its MFI portfolio from East India to grow at a CAGR of c.15 per cent over the next 4-5 years, while the overall book is expected to
grow at a CAGR of 30-35 per cent
The contribution of East India in the overall mix (c.60 per cent of loans) is expected to decline going forward.
