Bandhan Bank Ltd: Valuation Shifts Signal Reduced Price Attractiveness Amid Peer Comparison

Valuation Metrics and Grade Change

As of 4 February 2026, Bandhan Bank's P/E ratio stands at 24.79, a level that has pushed its valuation grade from 'fair' to 'expensive'. This shift was accompanied by a downgrade in the overall Mojo Grade from 'Hold' to 'Sell' on 31 October 2025, reflecting growing concerns about the stock's relative value. The P/BV ratio, a critical measure of market price relative to net asset value, is currently at 1.02, signalling that the stock is trading just above its book value, which is a departure from its historically more attractive valuations.

These valuation changes come despite the bank's modest return on equity (ROE) of 4.10% and return on assets (ROA) of 0.52%, both of which are relatively low for the private banking sector. Additionally, the net non-performing assets (NPA) to book value ratio remains elevated at 5.70%, indicating ongoing asset quality challenges that may be weighing on investor sentiment.

Comparative Analysis with Peers

When compared with its peer group, Bandhan Bank's valuation appears stretched. For instance, Karur Vysya Bank, classified as 'Very Expensive', trades at a P/E of 12.74, significantly lower than Bandhan's 24.79. City Union Bank and RBL Bank, both rated as 'Expensive', have P/E ratios of 17.64 and 28.4 respectively, with RBL Bank's higher P/E reflecting its growth prospects despite some volatility in earnings. Meanwhile, banks such as South Indian Bank and Tamil Nadu Mercantile Bank are considered 'Very Attractive', trading at P/E ratios of 7.4 and 7.79 respectively, offering investors more compelling valuations relative to earnings.

In terms of P/BV, Bandhan Bank's 1.02 is modestly above the threshold of 1.0, whereas several peers maintain more attractive book value multiples. For example, Karnataka Bank is rated 'Attractive' with a P/E of 6.4 and a P/BV well below Bandhan's level, highlighting the valuation premium Bandhan currently commands.

Stock Price Performance and Market Context

Bandhan Bank's stock price closed at ₹155.00 on 4 February 2026, up 4.17% from the previous close of ₹148.80. The stock traded within a range of ₹151.20 to ₹155.55 during the day, remaining below its 52-week high of ₹192.45 but comfortably above its 52-week low of ₹128.15. This recent price appreciation contrasts with the broader market, as the Sensex has shown a more muted performance year-to-date, declining by 1.74% while Bandhan Bank has gained 6.35% over the same period.

However, longer-term returns paint a less favourable picture. Over the past three years, Bandhan Bank has delivered a negative return of 31.94%, starkly underperforming the Sensex's robust 37.63% gain. The five-year return is even more concerning, with the stock down 54.78% compared to the Sensex's 66.63% rise. This underperformance underscores the challenges the bank faces in regaining investor confidence despite recent short-term gains.

Investment Quality and Risk Considerations

Bandhan Bank's Mojo Score of 41.0 and a Mojo Grade of 'Sell' reflect a cautious stance by analysts, driven by valuation concerns and subdued profitability metrics. The bank's dividend yield of 0.97% is modest, offering limited income appeal to investors. Furthermore, the PEG ratio stands at 0.00, indicating either a lack of meaningful earnings growth projections or data unavailability, which complicates growth-adjusted valuation assessments.

Asset quality remains a key risk factor, with the net NPA to book value ratio at 5.70%, signalling persistent credit challenges. This elevated level of NPAs could constrain earnings growth and capital adequacy, thereby impacting the bank's ability to deliver superior returns in the near term.

Sector and Market Positioning

Operating within the competitive private sector banking industry, Bandhan Bank faces stiff competition from both established players and emerging small finance banks. Its valuation premium relative to many peers suggests that investors are pricing in expectations of turnaround or growth that has yet to materialise fully. This premium, however, may be difficult to justify given the bank's current financial metrics and historical underperformance.

Investors should weigh the bank's recent price gains against its longer-term challenges and the broader sector dynamics. While the stock has outperformed the Sensex in the short term, its valuation now appears stretched compared to both historical averages and peer benchmarks, signalling a potential re-rating risk if earnings growth does not accelerate.

Outlook and Investor Takeaways

Given the current valuation landscape, Bandhan Bank Ltd. presents a challenging proposition for investors seeking value or growth at a reasonable price. The elevated P/E and P/BV ratios, combined with modest profitability and asset quality concerns, suggest that the stock is priced for perfection. Any disappointment in earnings or credit metrics could trigger a sharp correction.

For investors focused on long-term capital appreciation, it may be prudent to consider alternative private sector banks with more attractive valuations and stronger financial metrics. Banks such as South Indian Bank and Tamil Nadu Mercantile Bank offer compelling valuations with P/E ratios below 8.0 and better relative price-to-book multiples, potentially providing a more favourable risk-reward profile.

In summary, while Bandhan Bank has shown some recent price resilience, its valuation shift to 'expensive' territory and downgrade to a 'Sell' grade by MarketsMOJO underscore the need for caution. Investors should closely monitor the bank's earnings trajectory, asset quality trends, and sector developments before committing fresh capital.

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