Bandhan Bank shares down 23% in 2024. Can they recover post de-rating?

Bandhan Bank Ltd shares are in the bear grip, falling 23 per cent in 2024 so far, and 31 per cent from their 52-week high of Rs 272. Brokerages believe Bandhan Bank’s strategy to diversify away from the MFI segment, focus on restoring asset quality, and pursue geographical diversification is heading in the right direction for long-term sustainability. For now, anlaysts are neutral to positive on the stock, following the recent derating.

"We believe while near-term stock price is likely to be guided by outcome on CGFMU audit, the stock remains attractively valued (1 times FY26e P/BV) and given the change towards a more predictable growth and profitability profile offers favourable risk-reward. Maintain BUY with a revised target price of Rs 260," said JM Financial.

Kotak Institutional Equities has a fair value target of Rs 270 on the stock.

Bandhan Bank took insurance of the portfolio of Rs 20,800 crore under the CGFMU scheme and disbursed over Rs 1,950 crore under the Emergency Credit Line Guarantee Scheme (ECLGS) in FY2020-21. The maximum eligible amount a bank can claim under the CGFMU insurance is 15 per cent of the total insured amount.

Bandhan Bank claimed and received an amount of Rs 917 crore from the National Credit Guarantee Trustee Company Limited (NCGTC) in December, 2022. It made an additional claim of Rs 1,296 crore in the second quarter of FY24. NCGTC conducted an initial sample audit through an independent agency after the 2nd claim and made certain observations based on the sample audit, following which it decided to commission a detailed audit of the claims.

The recent significant derating on the counter meant the stock now trades at 1.1 times estimated FY26 adjusted book value. The ongoing audit regarding the CGFMU claim has hit the sentiment and remains a major overhang on the stock performance in near term, Motilal Oswal said.

Anlaysts said the RBI’s approval for a fresh CEO term is also a key monitorable. The bank has recently hired several key management personnel to drive its overall business performance. The management bandwidth has thus expanded with the onboarding of Mr Rajinder Kumar Babbar – ED & Chief Business Officer, Mr Ratan Kumar Kesh – ED and Chief Operating Officer, Mr Santosh Nair – Head Consumer Lending and Mortgages, and Mr Rajeev Mantri – CFO.

"The bank now has two Executive Directors on the Board against the regulatory requirement of having a minimum of one ED. We expect Bandhan Bank to deliver steady improvement in RoA/RoE to about 2 per cent/17 per cent by FY26, driven by loan growth recovery, moderation in credit costs, and largely stable margins. We reiterate our Neutral rating on the

stock with a target price of Rs 220 (based on 1.3x FY26E ABV)," Motilal Oswal said.