Ambit Capital cuts Bandhan Bank’s target price by 83.5%

Mumbai: Ambit Capital has slashed target price on Bandhan Bank by 83.5% to Rs 65 as it expects a significant deterioration in the lender's asset quality in the ongoing financial year. The brokerage has revised the target price down from Rs 395 and maintained ‘sell’ rating.

Shares of Bandhan Bank ended down 0.72% at Rs 192.30, bringing its total decline this year to 62%. In comparison, the BSE Bankex is down 37.5%.

Ambit expects Bandhan's asset quality to deteriorate as microfinance borrowers are most impacted by the lockdown given that most of them are daily wage earners. Lockdowns have also impacted ability to conduct and collect dues from borrowers as almost entire collections are in cash, said Ambit.



“The change in target price has been driven by our expectations of losses in FY21 and single-digit return on equity over the next 4-5 years. Apart from low ROE/ growth, multiples for the microfinance sector would also come down given high asset quality risk coming to the fore,” said Ambit.

Bandhan is more exposed in the current environment as 62% of its portfolio is concentrated in East India where leverage among borrowers is highest due to rising ticket sizes over the past three years, added Ambit.