IndusInd Bank Q2 Review: Sluggish Medium-Term Outlook Triggers Target Price Cuts

IndusInd Bank Ltd. received target price cuts from brokerages who cited near-term weakness in operations after the lender's net profit in the second quarter took a hit due to higher provisions.

The lender's bottom line stood at Rs 1,325 crore on a standalone basis during the July-September period, as compared to Rs 2,181 crore in the year-ago quarter.

That came after its provisions for the quarter rose 73% quarter-on-quarter to Rs 1,820 crore. On a yearly basis, provisions rose by 87%.

As microfinance institutions' stress is likely to be high even in third quarter and fee income is running slow for two quarters, Nuvama Institutional Equities reckons that the stock shall underperform even after the sharp price correction.

If recoveries in microfinance institutions remain weak, sequential slippage in the space shall be much higher and credit cost shall also exceed the guided range of 1.3% in the second half of the financial year, Nuvama said.

The brokerage sees upside risks to credit cost if MFI collections do not improve in the third quarter. The brokerage downgraded the stock to 'hold' from 'buy' and cut the target price to Rs 1,290 per share, an upside of 0.7% from the previous close.

Unless MFI starts outpacing loan growth, Citi Research estimates net interest margins at 4.1%. "Further building lower loan growth and modest fees, we cut earnings by 18-22% for the financial year 2025 to 2027."

Citi maintained 'buy' and cut the target price to Rs 1,630 per share against the Rs 2,010 apiece earlier. The brokerage assigned 1.7 times the fiscal 2026 book factoring low medium-term growth.

Deposits as of Sept. 30, 2024, were Rs 4.12 lakh crore, an increase of 15% over last year. CASA deposits comprised 35.87% of total deposits as of Sept. 30, 2024, compared with 37% in June. Retail deposits as per LCR stand at Rs 1.81 lakh crores as of Sept. 30, 2024, up by 16% year-on-year.

While the asset quality deteriorated across the consumer portfolios, microfinance stood out yet again as the worst impacted, Bernstein said in a note. "A better than system deposit growth was the only positive in a quarter otherwise marred by the stress in asset quality."

It maintained an 'outperform' rating with a target price of Rs 1,800 per share, implying an upside of 41% from the previous close.