Bandhan Bank Ltd: Valuation Shifts Signal Caution Amidst Mixed Performance

Valuation Metrics and Recent Changes

As of 7 January 2026, Bandhan Bank’s price-to-earnings (P/E) ratio stands at 19.33, a level that has contributed to its reclassification from an attractive to a fair valuation grade. This P/E is notably higher than some of its private sector banking peers such as Karur Vysya Bank (12.67) and South Indian Bank (8.12), but remains significantly lower than the very expensive RBL Bank, which trades at a P/E of 41.14. The bank’s price-to-book value (P/BV) ratio is currently 0.97, hovering just below the book value, which suggests the market is pricing the stock close to its net asset value but without a premium.

Despite the fair valuation grade, Bandhan Bank’s PEG ratio remains at 0.00, indicating either a lack of meaningful earnings growth expectations or an absence of reliable growth projections. This contrasts with peers like City Union Bank and CSB Bank, which have PEG ratios above 1.0, signalling higher growth expectations relative to their valuations.

Operational Performance and Asset Quality

Bandhan Bank’s return on equity (ROE) is modest at 5.00%, while return on assets (ROA) is 0.63%. These figures are subdued compared to industry standards, reflecting challenges in generating robust profitability. The bank’s net non-performing assets (NPA) to book value ratio is elevated at 7.50%, signalling asset quality concerns that may be weighing on investor sentiment and valuation multiples.

In comparison, some peers with more attractive valuations, such as Karnataka Bank (P/E 6.65) and Tamilnad Mercantile Bank (P/E 7.26), may offer better risk-adjusted opportunities, although their operational metrics and market capitalisation differ significantly.

Share Price Movement and Market Context

Bandhan Bank’s current share price is ₹147.35, showing a marginal increase of 0.14% on the day, with a 52-week trading range between ₹128.15 and ₹192.45. The stock has outperformed the Sensex over the short term, delivering a 1.03% return in the past week and a 5.14% gain over the last month, while the Sensex declined by 0.76% in the same period. Year-to-date, the stock is up 1.1%, compared to a slight Sensex decline of 0.18%.

However, the longer-term performance paints a less favourable picture. Over one year, Bandhan Bank’s stock has declined by 2.77%, while the Sensex gained 9.10%. The three- and five-year returns are particularly stark, with Bandhan Bank down 39.16% and 62.8% respectively, against Sensex gains of 42.01% and 76.57%. This underperformance highlights structural challenges and investor wariness despite recent short-term resilience.

Mojo Score and Grade Downgrade

Bandhan Bank’s Mojo Score currently stands at 36.0, reflecting a Sell rating, a downgrade from its previous Hold grade as of 31 October 2025. This downgrade is largely driven by the shift in valuation grade from attractive to fair, combined with concerns over asset quality and subdued profitability metrics. The bank’s market capitalisation grade remains low at 3, indicating a relatively small market cap compared to larger private sector banks, which may limit liquidity and investor interest.

Peer Comparison and Relative Valuation

When compared to its peers, Bandhan Bank’s valuation appears less compelling. Several private sector banks are trading at more attractive multiples relative to their earnings and book values. For instance, Tamilnad Mercantile Bank and Karnataka Bank are classified as very attractive and attractive respectively, with P/E ratios below 7 and P/BV ratios that suggest undervaluation relative to Bandhan Bank.

Conversely, banks such as RBL Bank and Ujjivan Small Finance Bank are deemed very expensive, trading at P/E multiples above 27, which may reflect higher growth expectations or market optimism. Bandhan Bank’s fair valuation grade positions it in the middle of this spectrum, but its weaker fundamentals and asset quality concerns weigh against a premium valuation.

Investment Implications and Outlook

Investors should approach Bandhan Bank with caution given the recent downgrade in valuation attractiveness and the Sell rating from MarketsMOJO. While the bank has demonstrated some short-term price resilience and outperformance relative to the broader market, its longer-term returns have lagged significantly behind the Sensex. The elevated net NPA ratio and modest returns on equity and assets suggest ongoing challenges in credit quality and profitability.

Given these factors, the current valuation does not offer a compelling margin of safety, especially when compared to peers with stronger fundamentals or more attractive valuations. Investors seeking exposure to the private sector banking space may find better risk-reward opportunities elsewhere.

Conclusion

Bandhan Bank Ltd.’s recent shift in valuation parameters from attractive to fair, combined with a downgrade in its Mojo Grade to Sell, underscores the need for investors to reassess their exposure to this private sector bank. While the stock has shown some short-term price strength, its longer-term underperformance, modest profitability, and elevated asset quality risks temper enthusiasm.

Investors should weigh these factors carefully against the broader banking sector landscape and consider alternative private sector banks that offer more compelling valuations and stronger fundamentals. The current market environment demands a discerning approach, and Bandhan Bank’s fair valuation grade signals that it may no longer be the most attractive option within its peer group.

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