The scrip has recovered a 292 per cent since March 23, the best among the Nifty stocks, making investors wonder whether it can continue the winning spree.
The stock is IndusInd Bank. Data showed FPI holding in the private lender touched 73.6 per cent last week.
Strong FPI buying helped the stock’s valuation improve to 1.5 times its one-year forward price to adjusted book value (P/AVB) per share from a distressed level of 0.4 times hit in March.
On a trailing basis, however, the price-to-book of 1.8 times today is still well below the 10-year average P/BV of 2.7 per cent.
The stock has a consensus ‘outperform’ rating, with 15 ‘buy’ and 14 ‘outperform’ recommendations on the publicly available Reuters Eikon database. Besides, the scrip also has nine ‘hold’ recommendations following the sharp rebound seen in recent months.
ICICI Securities in a note said restoration of depositors’ trust is reversing outflows seen in the previous quarters, which is providing comfort to investors on the liquidity front.
Recent capital raising by the lender demonstrates its ability to strengthen the balance sheet, it said, adding that the recommendations of the RBI Working Committee to raise the cap on promoter holdings from 15 per cent to 26 per cent and the promoters’ intention of increasing stake provide comfort, he said.
“With the balance sheet realignment over and deposit flow revived, the bank management is set to pedal asset growth with retail in focus. Though the extent of slippages impacted by the pandemic is yet to be seen, improving collection and a low quantum of restructuring may keep the asset quality pressure manageable,” the brokerage said.
Suresh Ganapathy of Macquarie told ET that the stock could have more upside if its asset quality improves. “There were worries that the bank would see a run on deposits, but it has seen good stabilisation on the deposit franchise since then,” Ganapathy told ET.
Phillip Capital said the stock’s valuations are no longer at distressed levels. Its return to a normalised growth trajectory and credit cost would be key drivers for further re-ratings, it said, adding that the aftermath of the moratorium could start hitting banks.
“We see challenges in terms of growth and see a long wait before credit cost normalises. We model in 3.3 per cent slippage and 4 per cent standard restructuring in FY21,” this brokerage said.
In a note last month, JM Financial said while it expects FY21 credit costs to remain high for the bank given the impact of Covid-19 and expects impaired asset ratios to inch up, “the seeds for creating the right mix of growth and quality were being sown.”
It said the focus on shoring up provisions despite having strong PPOP-profile, ‘retailisation’ of deposit base despite decadal low wholesale funding costs and a more balanced fee mix – which is transaction-oriented than balance sheet-driven – would be key indicators for creating a medium-term, steady profitability profile for the bank.
