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MOSL: BANDHAN BANK: Assam floods to elongate recovery trajectory (BANDHAN IN, Mkt Cap USD5.7b, CMP INR276, TP INR315, 14% Upside, Neutral)

• Bandhan stock has corrected sharply in recent days owing to concerns over its Assam portfolio as 85-90% of total districts in the state have been affected by severe floods.
• As Assam constitutes ~9% of MFI loans and ~8% of total banking units for BANDHAN, the ongoing flood situation will affect collection trends over the near term.
• Its SMA book for Assam and West Bengal stands at 8.5%/8.2% (v/s 46.4%/41.3% in 1QFY22), with restructured assets of INR54.2b (5.8% of loans). We expect the stress dissolution rate to now moderate.
• Our PAT and ABV projections have witnessed sharp swings of -24% to 22% over the past five quarters. We remain watchful of the near-term impact, though the stock trades at reasonable valuations of 1.7x FY24E P/BV against its average FY23-24E RoE of 24%. We maintain our Neutral rating with a revised TP of INR315 per share (2x FY24E P/BV).

Assam witnesses severe floods; forms 9%/8% of MFI loans/banking units

Assam has witnessed severe floods in recent weeks, which has affected 85-90% of total districts in the state and impacted the lives of ~3.3m. Total casualties, so far, stands at 135, almost similar to the 149 casualties witnessed in May-Aug’20. While Assam has witnessed floods in the past as well, the severity this time has been quite high v/s prior years and can impact lending operations in the state. Assam constitutes ~9% of MFI loans and ~8% of total banking units for BANDHAN.