IndusInd Bank shares at Rs 1,600? Stock valuation eases, but no near-term triggers ahead

IndusInd Bank's March quarter results lacked positive surprises, with net interest margin, pre-provision operating profit and profit largely coming almost in line with analyst estimates. Fresh slippages increased sequentially on residual cleansing in the MFI book and technical slippage in the corporate book. Despite reasonable valuations, a few analysts have trimmed price targets, as they see no near-term triggers for the stock. Broking firms have price targets in the range of Rs 1,230-1,600 for IndusInd Bank, which suggests 11 per cent-45 per cent potential upside for the stock.

Nuvama Institutional Equities said while valuations are cheap, it does not see near-term triggers due to uncertainty around core deposit growth and cost of funds. A shorter-than-expected tenor for the current CEO remains a medium-term risk, it said as the brokerage cut its price target for the stock to Rs 1,230 from Rs 1,300, valuing the stock at 1.3 times FY25 book value.

"With majority of stressed loans recognised as NPL, we see slippages and credit costs falling in FY24 and that will lift earnings growth and ROA," Jefferies said while suggesting a target of Rs 1,550 on the stock. CLSA has a target of Rs 1,500 while Morgan Stanley finds the stock worth Rs 1,525.

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Emkay Global noted the IndusInd Bank’s management has conservatively guided for a broad growth range of 18-23 per cent, factoring-in the macro-uncertainty, but expects better margins at 4.25-4.35 per cent in FY24, as it benefits from the rate reversal cycle and the increase in retail portfolio share.

"We trim our FY24E earnings by 2 per cent, building-in the slightly lower growth and higher opex, which were partly offset by better margins. We introduce FY26 estimates and expect the bank to report RoA/RoE at 1.8-1.9 per cent/15-18 per cent over FY24-26E. The bank remains well capitalized with CET 1 at 15.9 per cent, but promoters would look at increasing stake and have sought RBI permission, which may pose a dilution risk," it said while trimming its target on the stock to Rs 1,600 from Rs 1,650 earlier.

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Motilal Oswal Securities said IndusInd Bank's operating performance remains on track, led by steady NII growth and controlled provisions. Asset quality remains steady, even as slippages increased QoQ. Overall, the outlook for credit cost remains controlled.

"Healthy provisioning in the MFI portfolio and contingent provisioning buffer of 0.7 per cent of loans will enable a steep decline in credit cost, thus driving recovery in earnings. We estimate PAT to report 27 per cent CAGR over FY23-25, leading to a 17.6 per cent RoE in FY25. We reiterate our BUY rating with an unchanged target of Rs 1,450 (premised on 1.7 times Sep’24E ABV)," it said.

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