IndusInd Bank shares crash 19% on weak Q2; analysts cut target price

Shares of IndusInd Bank nosedived nearly 19% in early trade on Friday after the private sector lender reported the weakest earnings in the sector, led by higher credit costs, moderate loan growth, and slower fee momentum. The sentiment was further dented after brokerages cut the target price of the bank, citing that slower growth and clouded asset quality outlook will keep the stock under pressure in the near-term.

Weighed down by weak Q2, IndusInd Bank shares declined as much as 18.9% to hit a 52-week low of ₹1,034.75 on the BSE. The market capitalisation of the Hinduja Group-led company slipped below ₹1 lakh crore mark to ₹81,081 crore. On Thursday, the banking stock ended 0.53% lower at 1278.90, after falling nearly 6% in the previous four consecutive sessions.

The shares of IndusInd Bank touched its 52-week high of ₹1,694.35 on January 15, 2024. The counter has lost nearly 35% in the calendar year 2024, while it has fallen over 22% in the last one year. The stock has seen a correction of 30.5% in six months and 28% in a month.

IndusInd Bank shares were hammered today after the bank reported a 39% year-on-year (YoY) drop in its net profit to ₹1,325 crore in the second quarter ended September 30, 2024. The bottom line was impacted by near doubling of loan loss provisions during the quarter. The provisions and contingencies spiked to ₹1,820 crore in Q2 FY25, up 87% over ₹974 crore in the year ago period.

The net interest income (NII) rose 5% YoY to ₹5,347 crore, while the net interest margin (NIM) dropped to 4.08% from 4.29% in the same period last year.

On the asset quality front, gross non-performing asset (NPA) and net NPA ratios were reported at 2.11% and 0.64%, respectively, against 1.93% and 0.57% in the year ago period.

Analysts cut target price post Q2

ICICI Securities has maintained ‘BUY’ on IndusInd Bank with a revised target price of ₹1,600 from ₹1,900 estimated earlier. “We are more disappointed on the weak revenue/PPOP growth, which has been disproportionately impacted by weak growth in high-yielding microfinance (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,” it says in a note.

JM Financial has also retained ‘Buy’ call on the stock with a price target of ₹1,380 from ₹1,900 earlier. “IndusInd's high-yield consumer loans (microfinance and credit cards) are facing asset quality challenges and are likely to keep its RoA under pressure in the near-term. We reduce our earnings estimates by -29%/-20% for FY25E/26E led by higher credit costs and lower NIMs. 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,” it says in a report.

Meanwhile, Nuvama has downgraded the stock to ‘HOLD’ from ‘BUY’, while cutting the price target to ₹1,290 from ₹1,690 earlier. “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%/15%.”

Motilal Oswal has also reiterated ‘BUY’ with a target price of ₹1,500 per share. “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.”

Emkay has also retained ‘BUY’ on the stock with a price target of ₹1,650 from ₹1,800 earlier,  citing its cheaper valuation and expected steady improvement in RoA to 1.8% in FY27E from 1.4% in FY25E, led by better margins benefiting from the rate-cut cycle and contained LLP. “We believe 4QFY25 should be an eventful quarter for IIB with possible clarity emerging on the MD’s term extension, relief in MFI, and the rate-cut cycle.”

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