IndusInd Bank shares off day's low; Jefferies sees 37% upside

IndusInd Bank Ltd shares on Tuesday recovered after briefly falling below Rs 900 level, with Jefferies maintaining 'Buy' on the stock, saying turnaround in operations can aid rerating. Jefferies, which hosted the IndusInd Bank management, said improvement in liability franchise and return on asset (ROA) along with stable top management team can aid rerating over medium term, especially as valuations are reasonable at 1 times FY28 adjusted book value.

"We do factor a turnaround in operations over 2-3 years, but a lower commission income could be a downside risk; assuming normalised 20 per cent CAGR in banca-fee over FY26-28- a 30 per cent reduction there will impact profit by 5 per cent. We stay with BUY call and target price of Rs 1,250 based on 1.3 times September 2028 book value," Jefferies said.

IndusInd Bank fell to a low of Rs 889 apiece on BSE, before recovering to Rs 900.25, still down 0.84 per cent. Jefferies' target suggests 37 per cen tpotential upside over Monday's closing levels.

The global investment bank said IndusInd Bank has made a reorientation of branch banking structure and consolidated the teams. It has also beefed-up corporate salary team and is focusing on growing current deposits through refreshed offerings in transaction banking, capital markets services & cash & forex banking.

"It will also target deposit opportunities from vehicle finance clients. Bank mobilised $3.5 billion in FCNR-B deposits, & the share of leveraged deposits (50 per cent) is lower than that of peers. With this, bank has lowered rates on wholesale TD that can support topline," Jefferies said.

The foreign brokerage said IndusInd Bank is confident of improving RoA from 0.6 per cent now to 1 per cent by the end of FY27, aided by tad lower credit costs and improved PPoP.

Over next two years, bank plans to improve RoA towards 1.25-1.30 per cent, with better PPoP from NIMs, fees and opex.

"However, the recent proposal to cut commissions on insurance products could be a drag, as its commission pool stood at Rs 1,000 crore in FY26 (18 per cent of FY27 normalised profit), with the majority of fees coming from new sales, including credit-protect products. Switch to ECL-based provisioning could have an impact of 1.25 per cent of loans or 100bps of Tier I CAR," Jefferies said.

It said the impact on recurring profits is lower and factored in RoA targets.

"For MFI loans, bank has strengthened underwriting & reduce fraud risks through maker-checker controls on loan applications. It has secured coverage under a credit guarantee scheme, which currently covers 75 per cent of portfolio & is expected to rise to 100 per cent.