Bandhan Bank IPO recommendations: Expensive but subscribe


Microlender turned small bank Bandhan Bank launches its maiden public offer today and several equity research analysts have come up with their recommendations. The Kolkata based bank has already placed 35,784,147 shares to 65 anchor investors at the upper end of the price band of INR370 – 375 per share for INR1,341.9 crore (INR13.42 billion). The investors include ICICI Prudential Life Insurance, Abu Dhabi Investment Authority, DSP Blackrock, White Oak India Equity Fund, Robeco Capital Growth Fund and others. This strong lineup of anchor investors is likely to help, although analysts have warned that valuations are on the higher side. Here is a quick overview of Bandhan Bank IPO recommendations by major brokerage houses.

Angel Broking acknowledges valuations are high but sees strength in high growth potential and profitability. “At upper end of the IPO price band, Bandhan is valued at 8.3x 3QFY18 book value (preIPO) and on Post dilution basis at 5x of BV. Though valuations are on the higher side, we expect such premium valuations to persist given (a) healthy return ratio (25%+ RoE for FY17 and 9MFY18), (b) balance sheet strength (24.8% CAR ratio, CASA – 33.2%) and (c) experienced and focused management. Considering the above positives, we recommend SUBSCRIBE on the issue,” said the brokerage house in its report.

ICICIdirect is another name in positive views for Bandhan Bank IPO recommendations and cited positives such as consistent track record of quality growth, strong deposit franchisee, high CASA, stable asset quality and consistent margins. “At the IPO price band of | 370-375, the stock is available at a multiple of 4.7x FY18E BV post fresh issue (based on 9MFY18 annualised PAT) at the upper end of the price band. On a P/E basis, it is available at 34.4x FY18E earnings at the upper band. Post issue market capitalisation has been calculated at ~| 44728 crore. We recommend SUBSCRIBE,” said the firm.

IIFL has put a Subscribe rating on IPO citing a highly scalable and profitable model. “The success in raising low‐cost deposits and addition of fee streams spells competitive edge in micro lending segment while strengthening NIM. Being a bank, Bandhan Bank was able to ride the recent MFI crisis smoothly unlike NBFC‐MFIs. So in the current form, it is a robust and resilient micro loan financier with great growth prospects. The bank would likely be able to sustain RoA and RoE near the 4% and 25% mark respectively. We believe long term investors would find post‐money valuation at 4.8x P/BV reasonably attractive,” opined the brokerage house in its report on Bandhan Bank IPO.

Bandhan Bank IPO Recommendations: Gains may be limited

Subscribe for long term is the call from Centrum Broking which warned that listing gains may be capped as asking valuations are expensive. “At the higher end of the price band of ₹375, the issue is priced at 10.2x its FY17 adjusted book value (ABV) and 8.6x its 9MFY18 ABV. At this valuation, while the issue seems richly priced, the bank has a unique business model which cannot be directly compared to any other bank or NBFC in India,” noted research analyst Payal Pandya.

Choice Broking has a positive but cautious stance on the upcoming IPO owing to high valuations. “Issue is aggressively priced as BBL is demanding valuation of Rs4,47,301.9 mn valued at P/ABV at 4.9(x) to FY18 annualized adjusted BVPS, making it the 7th most valuable lender. Valuation is expensive compared to RBL Bank at 3.2x, Federal Bank at 1.7x and even higher to well managed banks like Yes Bank at 3.2x, Indusind Bank at 4.8x. Considering all these factors, we are of the view that the issue is aggressively priced factoring all fundamental positives and leaving limited space for further upside. Thus, we assign ‘Subscribe with Caution’ rating to the issue,” noted analyst Satish Kumar in the IPO note.

Evidently, Bandhan Bank IPO recommendations are positive but gains may be limited as valuations are already stretched. Moderate grey market premium is indicative of a positive listing. Head to this page to see what fellow investors have to say about the IPO.


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