Is it wise to consider investing as IndusInd Bank’s stocks plummeted by 15% to Rs 1,089 on Friday?
Today’s trading session witnessed a significant downturn in the share price of IndusInd Bank, plummeting by 15% to reach Rs 1,089. This decline was triggered by the bank’s disappointing financial performance, with a notable 39% year-on-year decrease in net profit during the quarter ending September 2024. In Q2, the bank’s net profit amounted to Rs 1,325 crore, markedly lower than the projected figure of Rs 2,138 crore, leading to a bearish market sentiment surrounding the bank’s stocks.
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According to analysts, the profit of the private lender failed to meet the consensus estimate even after factoring in one-time provisions.
According to Nuvama Institutional Equities, the bank’s return on assets (RoA) dropped to 1% from the previous 1.7%. The Common Equity Tier 1 (CET1) also decreased by 94 basis points quarter-on-quarter, attributed to the increase in MFI risk weight from 75% to 125%.
The statement suggests that due to the persisting high MFI stress in Q3 and the stagnant fee income over the last two quarters, the stock is expected to continue its underperformance despite a significant price correction. Consequently, there has been a downward revision in the FY25E/26E EPS by 20% and 15% respectively. Additionally, the target price has been reduced to Rs 1,290/1.3 times BV FY26E from Rs 1,690/1.5x, leading to a downgrade of the stock from ‘BUY’ to ‘HOLD.’
Stoxbox’s Research Head, Manish Chowdhury, expressed disappointment over IndusInd Bank’s Q2FY25 performance, noting a substantial 40% year-on-year drop in net profit that fell well below market forecasts. The diminished profitability was mainly attributed to escalating operating expenses, particularly elevated finance costs, surpassing the bank’s revenue expansion.
Chowdhury mentioned that there was a decline in the bank’s NIM in the quarter, alongside a deterioration in both GNPA and NNPA indicating a decrease in asset quality. The ROA also saw a decline, which management linked to temporary factors. Despite these challenges, the bank expressed optimism regarding the upcoming months of the fiscal year. They foresee growth in the microfinance and vehicle finance portfolios, which is expected to enhance asset quality.
The stock rating for Nirmal Bang has been revised from ‘Buy’ to ‘Hold’, with a new target price of Rs 1,443, down from Rs 1,653.
The stock is likely to face challenges in the coming months as a result of several factors: a deceleration in loan expansion, difficulties in specific loan categories, and the unresolved matter of Sumanth Kathpalia’s tenure extension awaiting RBI endorsement. Kathpalia, whose current term is set to end in March 2025, was granted a 2-year extension instead of the anticipated 3-year renewal.
MOFSL noted that IndusInd Bank’s performance in the second quarter was marked by increased provisions, decreased other income, and a deceleration in the growth of high-yield loans.
According to MOFSL, the growth in deposits remained robust primarily driven by term deposits; however, the net interest margin (NIM) experienced a significant decline attributed to escalating costs and deceleration in the expansion of higher-yielding assets.
MOFSL has revised its earlier projected loan growth of 18-22% for FY25 downward to 13% due to IIB’s cautious approach towards unsecured lending. Despite potential challenges in the MF and Card businesses in the short run, overall asset quality is expected to stay steady with controlled slippages. As a result, the financial institution has adjusted its earnings forecasts for FY25/26 by 16.7% and 8.7% respectively. Nevertheless, MOFSL maintains a positive outlook by recommending a ‘Buy’ rating with a target price of Rs 1,500.
Analysts have highlighted the importance of tracking key elements moving forward such as enhancing asset quality, managing slippages effectively, and boosting NIM. They emphasized the necessity for the bank’s leadership to devise a coherent plan to tackle these hurdles and enhance upcoming results.
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