IndusInd Bank’s Street-beating March quarter numbers impressed analysts, who now see up to 50 per cent upside in the stock. A conducive environment for private banks to grow at an accelerated pace has also helped its cause.
Analysts have turned bullish on the lender, as they believe it has worked on asset quality, one of the key concerns that haunted the stock all through last year.
’s gross NPA ratio settled lower at 2.7 per cent in Q4 against 2.9 per cent in Q3 in line with the trend seen at its larger peers.
Though the bank reported additional technical slippages worth Rs 1,900 crore, of which accounts worth Rs 1,600 crore were upgraded in Q4, the management expects to upgrade the balance in Q1FY22.
The private lender last week reported a 190 per cent year-on-year rise in net profit for the quarter ended March at Rs 876 crore. Net interest income rose to Rs 3,534.6 crore.
Raj Jha of Edelweiss Securities, who has one of the most bullish projections on the stock with a price target of Rs 1,393, said since Q4 last year, the bank management has grown its deposits by Rs 54,178 crore even as it prudently grew the loan book by only Rs 5,812 crore, which enforces confidence that it will be able to participate in the growth phase healthily.
“Over and above that, the bank has now restricted its selldown in corporate book and even this book will now start participating in growth going forward. The overall asset quality has improved marginally. All of the above factors bode well with our thesis that corporate stress has peaked for the bank, credit cost cycle has peaked, and incremental growth will be ROA accretive,” he said.
Along with its peer SBI, IndusInd Bank has been one of the most volatile stocks in the Nifty pack, with the weekly one-year range above 2. The volatility, though, has been rewarding for investors. The stock has jumped nearly three times after hitting a 52-week low in May last year.
Now, it is a re-rating candidate.
“IndusInd Bank’s ability to return to its normal growth trajectory and keep credit cost low would be key drivers for further re-rating. The re-adjustment period seems to be over, and the bank is well poised to capture credit growth,” said Manish Agarwalla, analyst at Mumbai-based brokerage PhillipCapital.
He expects redeployment of excess liquidity towards loan and reduction in credit cost to drive earnings growth by 82.5 per cent in FY22 and 33 per cent in FY23, translating into an RoA of 1.5 per cent and 1.8 per cent, respectively.
PhillipCapital has upgraded the rating on IndusInd Bank to ‘buy’ with price target of Rs 1,200.
Low loan growth due to a cautious stance by the bank management is a concern for some analysts, but others believe this is just a phase and loan growth rate should improve gradually.
IndusInd Bank’s loan book grew 3 per cent YoY aided by a 5 per cent uptick in retail loans while the corporate book remained flat. Vehicle finance disbursements grew 30 per cent YoY (8 per cent QoQ) and the MFI and diamond portfolios swelled 15 per cent QoQ each.
The bank management highlighted that 81 per cent of its MFI portfolio has been originated post Covid and has 99 per cent collection efficiency. Further, the diamond portfolio has no restructuring, slippages or SMA-2 loans.
BoB Capital has a price target of Rs 1,100 on the stock and Jefferies Rs 1,300. The stock traded 1 per cent higher at Rs 923 in a flat market on Tuesday morning.
