Motilal Oswal upgraded Bandhan Bank to ‘Buy’ with a price target of ₹175 per share, implying an upside of 22% from Thursday’s closing price.
The brokerage said the bank has gone through a prolonged NPA cycle that weighed on growth and profitability, resulting in an average RoE of just 8% over the last five years.
Motilal had downgraded the stock to ‘Neutral’ in January 2021 at ₹341. With asset quality stabilising and margins normalising, the brokerage now expects operating performance to improve in the coming quarters.
It estimates Bandhan Bank to deliver a return on assets of 1.3% to 1.5% in FY27-28E, compared with 0.6% expected in FY26E.
After five years of valuation de-rating, Motilal said current valuations appear reasonable. While the brokerage remains watchful of upcoming West Bengal elections, it believes the current risk-reward equation is favourable.
Among other brokerages, CLSA has an ‘Outperform’ rating on Bandhan Bank with a price target of ₹190, citing a decent Q3 performance.
Nomura has a ‘Neutral’ recommendation with a price target of ₹160. It said the stock is trading at an inexpensive valuation of 0.8x FY27F BVPS, but sees limited near-term catalysts.
UBS has a ‘Neutral’ rating on Bandhan Bank with a price target of ₹180.
Bandhan Bank Q3 review
The lender’s net interest income declined 5% YoY due to pressure on yields stemming from changes in portfolio mix. The bank reported gains of ₹126 crore from the sale of assets to an ARC, leading to a 26% QoQ rise in other income, although this was still down 37% YoY.
Pre-provision operating profit fell 28% YoY but rose 10% sequentially. The quarter also saw a ₹120 crore impact from new labour laws.
Provisions declined 16% YoY, while profit after tax fell sharply by 52% YoY.
Net interest margins improved by 6 basis points sequentially to around 5.9%, broadly in-line with expectations, while credit costs declined 12 basis points QoQ to about 3.3%.
Loan growth stood at 8.9% YoY at ₹1,397 crore, led by the non-EEB segment, including wholesale banking, housing finance and retail assets, which grew 25% YoY. The secured loan book increased to 56.7% from 48.9% a year ago.
Return on assets improved to 0.4%, up 19 basis points QoQ, while return on equity rose 150 basis points sequentially to 3.2%.
Management indicated that credit costs are expected to trend lower in Q4FY26, with FY27 guidance at 1.6% to 1.7% and around 2.5% for the EEB segment.
It also expects cost of funds to ease further, aiding margins, and reiterated loan book growth guidance of 15-17% CAGR, with deposit growth expected to outpace loan growth.
Shares of Bandhan Bank ended Thursday’s session 3.64% higher at ₹143, though the stock remains down 26% from its 52-week high of ₹192.48.
