IndusInd Bank shares, Nifty's best performer in a year, scale pre-Covid highs. More upside ahead?

Shares of IndusInd Bank regained its pre-Covid levels after a little more than three years as the stock surged about 4 per cent to hit its new 52-week high. The private lender has been the best performer of the Nifty50 pack in the last five years and has delivered multibagger returns from its Covid-19 lows.

The blue-chip lender reported in-line numbers to the street's expectations, which also triggered some buying in other result-bound lenders like ICICI Bank, State Bank of India (SBI), Axis Bank and Kotak Mahindra Bank. However, brokerage firms remain mostly positive on IndusInd Bank.

IndusInd Bank reported a net profit of Rs 2,124 crore for the April-June 2023 quarter, 33 per cent higher on a year-on-year (YoY) as compared to Rs 1,631 crore clocked in the year-ago period. Total income for Q1FY24 rose by 28 percent on-year to Rs 12,939 crore, including a net interest income of Rs 5,863 crore.

Following the announcement of June quarter results, shares of IndusInd Bank surged about 4 per cent to 1,443.35, hitting its new 52-week highs. The lender was commanding a total market capitalization close to Rs 1.15 lakh crore. The scrip had settled at Rs 1,390.30 on Tuesday.

The bank's gross non-performing assets (NPA) stood at 1.94 per cent in Q1FY24, down from 2.35 per cent recorded in the same quarter last year. On the other hand, net NPA of the lender for the June 2023 quarter stood at 0.58 per cent, improving from 0.67 per cent on a year-on-year basis.

IndusInd Bank's pre-provisioning operating profit (PPOP) came in at Rs 3,830 crore, which is 13 per cent higher on YoY basis. Provisions for the quarter under review stood at Rs 992 crore, which is lower than Rs 1,251 crore in Q1FY23.

Shares of IndusInd Bank have rallied more than 360 per cent from its Covid-19 lows, while the stock is up 170 per cent in the last three years. The scrip has gained about 62 per cent in the last one year, making it the best performing stock in the NIfty50 pack. It is up 17 per cent in 2023 so far.

Analysts from the various brokerage firms continue to remain largely bullish on the stock and see more upside left in it in the coming quarters. A few analysts have revised the target price of IndusInd Bank with some upgrading the stock ratings.

IndusInd Bank posted strong Q1FY24 earnings growth. Strong 6 per cent QoQ growth in savings deposits and 5 per cent QoQ in retail LCR deposits. Deceleration in savings deposits had been a key concern in FY23. Strong NII growth of 4 per cent QoQ driven by healthy loan growth and a stable QoQ NIM versus declining NIM for the sector were key positives, said Nuvama Institutional Equities.

"With high credit cost behind, not to mention a stable NIM and steady loan growth, IndusInd Bank's earnings shall outperform the sector. We are tweaking our EPS estimates and revising the target price to Rs 1,620 based on an upward revision in the target FY25E BV to 1.7 times," it added while upgrading the stock to buy.

Earnings quality has been improving since the past 9 quarters led by strong loan growth that was funded by granular deposits and better asset quality which translated to lower credit costs. However, high proportion of wholesale deposits and lower buffer provisions leaves limited headroom for multiple expansion, said Prabhudas Lilladher with a target price of Rs 1,530 and a buy tag.

IndusInd Bank seems to have passed the consolidation phase. In addition to structural changes, it is poised to capture cyclical tailwinds. The lender has built a sufficient contingency buffer in addition to coverage of over 70 per cent, which will rein in credit cost. Scaling growth, improvement in liability and better return ratios may aid a re-rating, said Elara Capital with a buy rating with a target price of Rs 1,646.

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