IndusInd Bank Share Price Highlights October 25, 2024: IndusInd shares crash 19% post Q2 results

While advances growth of 13 per cent and deposit growth of 15 per cent on an annual basis were fine, net profit declined 39 per cent YoY. This decline is primarily attributable to the management’s decision to hike the contingent provision by ₹525 crore to ₹1,525 crore.

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The key factor that triggered the rout in the stock (IndusInd) is the deterioration in asset quality.

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Nuvama has downgraded the stock from hold to buy at a target price of ₹1,290. Many brokerages, including Jefferies, HSBC, Macquarie, Motilal Oswal, ICICI Securities and Emkay Global, have slashed the target prices on IndusInd as its Q2 results disappoint. 

Shares of IndusInd traded at ₹1,039.65 on the NSE, lower by 18.78% as at 3.04 pm.

Top gainers on the NSE as at 3 pm: 

ITC (2.09%), Axis Bank (1.56%), Britannia (0.88%), HUL (0.77%), Sun Pharma (0.43%) 

Top losers: 

IndusInd (-18.35%), Adani Enterprises (-5.43%), Shriram Finance (-4.78%), BPCL (-4.34%), M&M (-4.27%) 

IndusInd Bank was the biggest laggard, plummeting 18.41 per cent, followed by Mahindra & Mahindra dropping 5.02 per cent. Other major losers included NTPC (-4.77 per cent), Adani Enterprises (-4.61 per cent), and Shriram Finance (-4.49 per cent).

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Despite being favorably placed to capture turning rates table, volatile performance has been a key disappointment. While IIB has built contingency buffer in addition to coverage of +70%, which may rein in credit cost, but variability on these is a monitorable, especially given challenges in some segments. Scaling growth, improved liability, consistency and better return ratios may help a re-rating, which looks elongated at this juncture. Factoring in softer core and higher credit cost, we prune FY25E/26E EPS by 13.1%/2.5% and given higher volatility, we reduce our target multiple to 1.6x (from 1.7x) leading to revised TP of INR 1,600 (from INR 1770). That said, IIB trades at 1.6x P/BV, rendering risk-reward favorable – Maintain BUY.

IndusInd stock plunged 18.35% on the NSE to ₹1,045.10 as at 2.06 pm.

Shares of IndusInd traded 18.40% lower at ₹1,044.50 as at 1.20 pm.

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IIB reported a weak quarter, characterized by higher provisions (amid the creation of a contingency buffer of INR5.25b), lower other income, and slower growth in higher-yielding loan growth. However, deposit growth was healthy, led by term deposits. NIM contracted sharply amid the rising cost and slower growth in higheryielding assets. Asset quality ratios deteriorated marginally as fresh slippages continued to be elevated, primarily from the consumer finance book. 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%. The bank has indicated a credit cost of 110-130bp over 2HFY25, though it does not plan to use its contingent provision (INR15b). 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. We cut our earnings estimates by 16.7%/8.7% for FY25/26, leading to an RoA/RoE of 1.6%/13.6% by FY26. Reiterate BUY with a TP of INR1,500 (premised on 1.5x FY26E ABV). Progression on asset quality (MFI business) and RBI approval for a fresh term to MD & CEO remain key near-term events to watch for.

We are more disappointed on the weak revenue/PPOP growth, which has been disproportionately impacted by weak growth in high-yielding MFI and vehicle segments. Due to a sharp rise in 30dpd book in the MFI segment, we could possibly see higher segmental slippages in the near term, which may weigh on NIM as well. We cut our growth/NIM estimate and increase credit costs estimates, resulting in a double-digit cut in FY25E PAT while RoA likely moderates to 1.5%. For FY26E, we see a healthy bounce-back in growth/NIM/ asset quality and thus RoA reviving to ~1.8%. Maintain BUY with a revised target price of INR 1,600 (vs. INR 1,900), valuing the stock at ~1.6x FY26E ABV. Key risk is higher-than-expected rise in slippages impacting profitability.

IndusInd Bank reported a weak quarter on most fronts led by a) higher credit costs (which included contingent provision of INR 5bn, (0.15% of loans) b) NIM (calc.) decline of 15bps QoQ as MFI disbursements declined and c) slower fee momentum. Asset quality worsened led by consumer slippages at 1% of consumer loans (which included MFI slippages of INR 4bn) with GNPA inching up 9bps QoQ (to 2.11%) and NNPA increased to 0.64% (4bp QoQ). Management believes that while situation in microloan business continues to be challenging, it expects the same to improve swiftly towards end of FY25. Additionally, while non-MFI consumer slippages have inched up, mgmt. expects pull back in delinquencies in a seasonally stronger H2 of the FY. NIMs declined led by yield compression (primarily as disbursements in high yield products declined). While we appreciate IIB’s proactive stance on creating contingent buffers, we believe slower growth and clouded asset quality outlook will impact return profile of the bank and is likely to keep stock multiples under pressure in the near-term. We reduce earnings by -29%/-20% for FY25E/26E to factor NIM compression and higher credit costs. We now forecast RoAs of 1.3%/1.5% and RoEs of 11.1%/13% for FY25E/26E, respectively for IndusInd Bank. Swifter than anticipated normalization of microfinance asset quality is an upside risk to earnings. Our revised target price of INR 1380 values IIB at 1.4x FY26E P/BV. Maintain BUY.

Decline in margins (down 17bps q/q) and lower non-interest income (core fees income down 9.5% q/q) led to decline in operating profits for the bank (both y/y & q/q). It made a 5.3bn contingent buffer which led to a sharp decline in overall profitability. Headline asset quality deteriorated. We believe this was the most challenging quarter for the bank post-Covid-related disruption and expect things to significantly improve in a couple of quarters. Ahead, we expect credit growth to pick up and slippages to moderate, leading to strong earnings. With multiple positive triggers for the bank (rate cut, pick-up in MFI, reappointment of MD) we maintain a positive view with a 12-mth TP of Rs1,496, 1.4x P/ABV on the FY27e book.

Weak quarter; increasing vulnerabilities

IndusInd Bank’s (IIB) Q2FY25 earnings missed estimates on account of softer margins, weak operating performance, and an additional provisional buffer of INR5.3bn. Deposit growth (~15% YoY) was higher than loan growth (13% YoY), even as CASA dropped to 35.9% (-80bps QoQ). Credit costs shot up to 2.1% (Q1FY25: 1.2%) as IIB built up its contingent buffer, given growing signs of elevated stress in the MFI and credit card book. Lower growth in the unsecured and higher-yielding businesses impacted yields and fee income, reflecting in weaker operating margins. While the management has created surplus buffers, we believe growth deceleration in high-yielding segments, high opex intensity with focused efforts on collections, and elevated credit costs (across the board) are likely to keep earnings muted. We hack our FY25E/FY26E earnings estimates by ~12%; retain REDUCE with a revised TP of INR1,245 (1.2x Sep-26 ABVPS)

IndusInd shares crashed 19.84% on the NSE to ₹1,026.15 as at 12.10 pm.

Major gainers on the NSE as at 12.09 pm:

ITC (3.22%), Sun Pharma (1%), Asian Paints (0.74%), Britannia (0.66%), Kotak Mahindra (0.60%)

Major losers:

IndusInd (-19.78%), M&M (-4.71%), Adani Enterprises (-4.04%), Shriram Finance (-3.92%), NTPC (-3.65%)

• Bernstein on Indusind Bank: Maintains Outperform on Bank, target price at Rs 1800/Sh (Neutral)
• Citi on Indusind Bank: Maintains Buy on Bank, cut target price at Rs 1630/Sh (Neutral)
• GS on Indusind Bank: Maintains Buy on Bank, cut target price at Rs 1430/Sh (Neutral)
• MOSL on Indusind Bank: Maintains Buy on Bank, cut target price at Rs 1500/Sh (Neutral)
• HSBC on Indusind Bank: Maintains Buy on Bank, cut target price at Rs 1510/Sh (Neutral)
• Jefferies on Indusind Bank: Maintains Buy on Bank, cut target price at Rs 1470/Sh (Neutral)
• Macquarie on Indusind Bank: Maintains Buy on Bank, cut target price at Rs 1690/Sh (Neutral)

Shares of IndusInd slumped 18% on the NSE to ₹1,049.70 as at 11.18 am.

MOSL on IndusInd BK

Buy, TP Rs 1500

Weak quarter; steering through near-term challenges

Cut earnings estimates by 16.7%/8.7% for FY25/26, leading to an RoA/RoE of 1.6%/13.6% by FY26

NIM contracts sharply to 4.08%; MFI mix declines 149bp to 9.2% of loans

Jefferies on IndusInd BK

Buy, TP cut to Rs 1470

2Q disappointed with profit of Rs13bn, -39% YoY, missing est due to higher credit cost & lower NIMs

Expect pressure to stay in 2HFY25 & moderate in FY26-27 driving earnings cut of 13-25%

Val @1.3x FY26 Adj PB reasonable

GS on IndusInd BK

Buy, TP Rs 1430

Weak 2Q with core-PPOP disappointing yet again (down 8% QoQ), as it missed GSe by 8%

Credit costs spiked partly on contingency buffers leading to PAT miss by 40%

Cut FY25/26/27 EPS by 19%/10%/9%

HSBC on IndusInd BK

Buy, TP cut to Rs 1510 from Rs 1770

Microfinance loans led weakness in performance.

Adverse movements in loan growth, NIMs and credit costs disappointed

Cut EPS by 8.7-21.4% for FY25-27e

However, @1.3x FY26e BVPS, risk/reward favourable

Shares of IndusInd Bank tumbled 19 per cent on Friday, set for their worst day in over four years after the lender warned it would miss its full-year loan growth target, becoming the latest lender to flag the stress in microfinance loans.

The bank also posted an unexpected drop in second-quarter profit due to a jump in bad loans in the microfinance business, which are collateral-free loans to borrowers with annual income up to 300,000 rupees.

“Obviously, I don’t think we should be able to do 18 per cent to 22 per cent (loan growth for the year). I think, given what has happened, we have to watch quarter to quarter,” CEO Sumant Kathpalia said. Its loan growth was 13 per cent-15 per cent in the first two fiscal quarters.

Reuters

Shares of IndusInd crashed 18% on the NSE to trade at ₹1,050.55, also its 52-week low. The lower circuit is at ₹1,024.05.

Private sector lender IndusInd Bank on Thursday reported a sharp 40 per cent year-on-year (y-o-y) and 39 per cent quarter-on-quarter (q-o-q) fall in its Q2FY25 consolidated net profit at ₹ 1,331 crore, largely on account of higher provisions due to bad loans from unsecured credit segment.

The bank’s gross and net non-performing asset (GNPA, NNPA) ratio rose to 2.11 per cent and 0.64 per cent in Q2FY25, respectively, from 2.02 and 0.60 per cent a quarter ago.Segment wise, two-wheeler loans had 8 per cent GNPA ratio, micro loans had 6.5 per cent GNPAs and credit card NPAs stood at 3.3 per cent. The bank is among the largest MFI lenders in the country with ₹32,723 crore of outstanding micro loans as on September 30.

As bad loans rose, provisions and contingencies funds rose 87 per cent y-o-y and 73 per cent q-o-q to ₹1,820 crore. The bank’s pre-provisioning operating profit stood at ₹3,600 crore, down 8 per cent y-o-y.

Shares of IndusInd declined 16.18% on the NSE to trade at ₹1,073 as at 10.08 am.

Top gainers on the NSE as at 9.30 am:

ITC (3.67%), Axis Bank (2.22%), HCL Tech (1.23%), Asian Paints (1.09%), Kotak Mahindra (1.08%)

Top losers:

IndusInd (-13.63%), NTPC (-3.31%), M&M (-1.57%), Coal India (-1.55%), L&T (-1.43%)