IndusInd Bank share price targets slashed; 3 reasons why stock may stay under pressure in short term

IndusInd Bank target price: Nirmal Bang has downgraded the stock to ‘Hold’ from ‘Buy’ and suggested a lower target price of Rs 1,443 from Rs 1,653. 

IndusInd Bank’s Q2 results, as per analysts, were a all-round miss as loan growth moderated, net interest income (NII) declined sequentially, slippages jumped and credit cost increased. Analysts said despite accounting for one-time provisions, profit by the private lender fell short of the consensus estimate.

Nuvama Institutional Equities said the return on asset (RoA) for the bank came in at 1 per cent, down from 1.7 per cent sequentially. CET1 also fell 94 bps QoQ due to a hike in MFI risk weight from 75 per cent to 125 per cent.

“As MFI stress is likely to be high even in Q3 and fee income is running slow for two quarters, we reckon the stock shall underperform even after the sharp price correction. We are cutting FY25E/26E EPS by 20 per cent/15 per cent. We are cutting target price to Rs 1,290/1.3 times BV FY26E from Rs 1,690/1.5x; downgrade the stock to ‘HOLD’ from ‘BUY’,” it said.

Manish Chowdhury, Head of Research at Stoxbox said IndusInd Bank’s performance in Q2FY25 was disappointing, with net profit falling 40 per cent YoY, significantly missing street expectations. The decline in profit was primarily due to rising operating expenses, including higher finance costs, which outpaced the bank’s income growth.

“Additionally, the bank’s NIM deteriorated during the quarter. In terms of asset quality, both GNPA and NNPA saw deterioration and ROA also declined, though management attributed this to transitory factors. However, the bank remains optimistic about the second half of the fiscal year, anticipating growth in its microfinance and vehicle finance portfolios, which will ultimately improve the asset quality,” Chowdhury said.

Nirmal Bang has downgraded the stock to ‘Hold’ from ‘Buy’ and suggested a lower target price of Rs 1,443 from Rs 1,653.

“In our view, the stock will see an overhang in the near term due to (1) Slowdown in loan growth (2) Stress in some secured and unsecured loan segments and (3) The pending RBI approval for Sumanth Kathpalia’s tenure extension (current tenure which will expire in March 2025 was renewed for 2 years as against the expectation of 3 year extension),” it said.

IndusInd Bank’s Q2 results were characterised by higher provisions, lower other income, and slower growth in higher-yielding loan growth, MOFSL said.

Deposit growth was healthy due to term deposits but NIM contracted sharply amid the rising cost and slower growth in higher-yielding assets, MOFSL said.

“IIB had previously guided for loan growth of 18-22% for FY25. However, with the bank’s cautious view on unsecured growth, we estimate loan growth at 13 per cent. While the MF and Card businesses may continue to report some stress in the near term, overall slippages are likely to remain in control and help maintain broadly stable asset quality,” MOFSL said while cutting its earnings estimates by 16.7 per cent/8.7per cent for FY25/26. It suggested a ‘Buy’ rating with a target of Rs 1,500.

Key factors to monitor going ahead will include improvements in asset quality, control over slippages, and a recovery in NIM. The bank’s management will need to outline a clear strategy to address these challenges and drive future performance, analysts said.