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JMFL
Bandhan Bank (Buy)
CMP: ₹525.35
Target: ₹710
With respect to complying with RBI guidelines on promoter stake reduction, the bank continues to engage with the regulator having swiftly reduced promoters’ stake to 60.96 per cent (as of October 21, 2019), though still away from what is required. The management mentioned that in the absence of regulatory a go-ahead for collapsing the three-tier structure, the option to reduce stake through inorganic means is not on the table (given that the Gruh-merger gives them the desired diversification) and the bank does not need primary capital (CET1 at 28.45 per cent including 1HFY20 profits).
With regards to a secondary stake sale, nothing is currently being considered given that it continues to engage with the regulator. In our view, it is pertinent to note that Bandhan Bank has a history of having long-term shareholders with a focus to satisfy developmental needs in emerging economies and management still seems inclined towards such partners in the business. We continue to like Bandhan for strong track record on profitability, asset quality and efficiency.
In our view, Bandhan Bank has a strong growth runway and the Gruh merger gives it a much-need diversification while ensuring stability and compliments the business model.
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