Bandhan Bank Faces 40% Price Target Reduction From Jefferies Amid CEO Resignation

Jefferies, a brokerage firm, has downgraded Bandhan Bank to "underperform" from its previous "buy" recommendation following the resignation of its founder and CEO, Chandra Shekhar Ghosh, effective 9 July. The firm has slashed the stock's price target by 40 per cent to Rs 170 from Rs 290, indicating a potential downside of 14 per cent from current levels.

The sudden departure of the founder-CEO, despite the board's approval for a three-year reappointment pending RBI approval, came as a negative surprise to Jefferies. The brokerage emphasised the importance of a smooth transition and succession, particularly given that much of the bank's senior staff is relatively new.

Jefferies anticipates potential uncertainties surrounding the leadership transition could lead to slower growth and increased credit costs for the bank. Consequently, the firm has lowered its growth outlook for Bandhan Bank and adjusted its credit cost estimates for the fiscal years 2025-2026, resulting in a 10 per cent to 14 per cent cut in earnings per share (EPS) estimates for the lender.

Furthermore, Jefferies expects Bandhan Bank's valuations to be impacted by these uncertainties, drawing parallels with a similar event at RBL Bank involving an abrupt CEO resignation followed by a succession process.

Despite being the worst-performing stock on the Nifty Bank index in 2024 with nearly a 20 per cent decline, Bandhan Bank's shares are currently under F&O ban for Monday's trading session, implying no new positions can be established in the stock.

In its March quarter report, Bandhan Bank recorded a 17.8 per cent growth in loans and advances year-on-year, with total deposits increasing by 25.1 per cent compared to the same period last year. The loan growth figure includes the sale of its NPA portfolio worth Rs 720 crore to an Asset Reconstruction Company (ARC), as well as short-term loans against Fixed Deposits amounting to Rs 2,151 crore.

ICICI Securities' "Add" recommendation on Bandhan Bank is under review following the CEO's resignation, with the brokerage highlighting concerns about the potential impact on the bank's growth and profitability.

Similarly, JPMorgan and Goldman Sachs anticipate the leadership transition to weigh on Bandhan Bank's share price in the near term, although both firms maintain their respective ratings on the stock with price targets of Rs 270 and Rs 267.