Brokerages Jefferies and Nomura have slashed their target prices for the stock of the Kolkata-based lender that emerged as a full-service bank after decades of operations as a microfinancier.
The stock slid 6.21% to ₹185.1 on the NSE on Monday and has declined 24.17% so far in 2024. Jefferies has revised the price target for the bank to ₹170 from ₹290 and downgraded the share to ‘underperform’ after this announcement.
Nomura also slashed the target price to ₹175 from ₹275.
“The unanticipated resignation… triggered the fall in the stock,” said Shrikant Chouhan, head of equity research at Kotak Securities. “This development is an unexpected one and it has probably come at the wrong time, considering the bank is yet to fully recover from the asset quality issues.”
The bank had reported 7% gross non-performing assets in Q3FY24, which had raised concerns about its asset quality.”Bandhan Bank has seen a couple of top-level resignations in the past year, including those of the CFO and CCO,” said Yuvraj Choudhary, research analyst at Anand Rathi Institutional Equities. “The company is faced with uncertainty in top management, along with higher stress in asset quality and an audit in its CGMFU (Credit Guarantee Fund for Micro Units) books.”Choudhary added that finding a new chief executive by July, when Ghosh is set to retire and take a more strategic role, will be a difficult task, and said investors must remain cautious.
“Until the company finds a new MD, the shares will be under pressure and face a massive overhang,” he said.
The voluntary retirement of Ghosh may bring an impact on the books of the bank, which was earlier arguing for a cyclical recovery in the core MFI (microfinance institution) business and cheap valuations.
“Given the uncertainty, we are lowering our growth outlook and credit cost estimates for FY25-26, driving our EPS (earnings per share) down by about 10-14%,” said brokerage Jefferies, in a note to its clients. The firm also said that smoother/ faster stability at top management/ business will be key to their rating stance.
Kotak Securities’ Chouhan still remains positive about the bank’s outlook in the longer term. “The improvement in the asset quality in recent quarters, the tailwinds in the microfinance industry and a relatively inexpensive valuation were some of the key factors behind us having a positive view on the stock,” said Chouhan. “We have a positive view about the bank, but the current development is most likely to de-rate the bank from its current levels.”