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JMFL
Bandhan Bank (Buy)
CMP: ₹415.55
Target: ₹600
Bandhan Bank has seen a sharp correction in its market cap (₹8,600 crore, 15 per cent fall) since the announcement of its merger with Gruh Finance, and we believe the impact of EPS/BVPS dilution (13 per cent/14 per cent in FY20E) as a result of the rich price paid for the acquisition has been more than factored in. We factor in the merger in our estimates and looking ahead, we believe the current price offers an attractive entry point for the stock.
Following the merger, Bandhan will remain India’s most profitable banking franchise (RoA/RoE of 3.6 per cent/24 per cent in FY21E), with top-notch asset quality and loan growth metrics. The secured nature of Gruh’s book provides further comfort on Bandhan’s asset quality, while diversifying the book geographically. Separately, the eastern Indian housing finance market is one of the most under-penetrated (Exhibit 5), and also houses India’s 2 most populous States (WB and Bihar). Our mock-up analysis suggests that, armed with Gruh’s systems and processes, Bandhan can scale up the housing finance business to c.₹15,000 crore by FY25E in its home market. Further, the bank’s management has indicated that Gruh’s mid- and senior-management will continue at the bank, which we believe is essential for integration efforts.
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