IndusInd Bank shares jump 9% after strong Q1 show; top brokerages retain buy call

Shares of IndusInd Bank surged more than 9% in intraday trade on BSE on July 21 a day after the bank posted its June quarter earnings.

IndusInd Bank posted a standalone net profit of ₹1,603.29 crore in the quarter ending June 30, 2022 (Q1FY23), up 64% year-on-year (YoY) compared to a profit of ₹974.95 crore in the same quarter last year.

Net interest income (NII) stood at ₹4,125 crore, up 16% YoY and 4% QoQ. Net interest margin (NIM) rose to 4.21% as compared to 4.06% as at June 30, 2021, and 4.20% as at March 31, 2022.

Deposits grew by 13% YoY to ₹3,02,719 crore from ₹2,67,233 crore; CASA grew by 16% YoY while savings deposits grew by 19% YoY to ₹95,243 crore from ₹79,928 crore.

Gross NPA and net NPA ratios improved to 2.35% and 0.67% from 2.88% and 0.84% YoY respectively.

Brokerages upbeat

The bank's strong quarterly numbers fetched positive reviews from most brokerage firms which seem to have boosted the stock price.

Brokerage firm Motilal Oswal Financial Services has maintained a 'buy' call on the stock with a target price of ₹1,300.

IndusInd Bank's operating performance remains on track led by healthy NII growth and controlled provisions, said Motilal Oswal.

"Asset quality ratios increased marginally on higher slippages from restructured assets though credit cost outlook remains in control. The management is guiding for continued loan growth momentum driven by steady trends across both consumer and corporate businesses. Healthy provisioning in the MFI portfolio and a contingent provisioning buffer of 1.2% of loans will enable a sharp decline in credit costs, thereby driving a sharp recovery in earnings. We estimate PAT to grow at 35% CAGR over FY22-24 leading to 15.2% RoE in FY24," said Motilal Oswal.

IIFL Securities maintained a 'buy' call on the stock with a target price of ₹1120, citing strong quarterly earnings, with acceleration in loan growth, strong fee income and treasury performance and improving asset quality from the standard book being the key positives.

Higher slippage including about ₹920 crore from the restructured book which led to a slight deterioration in headline asset quality was, however, a negative, the brokerage firm said.

IIFL Securities expects earnings to be driven by a pick-up in loan growth, stable margins, healthy fee income and normalising credit cost.

"We raise earnings by 5.2%, 2.2% and 2.9% for FY23, FY24 and FY25 and expect IndusInd Bank to deliver RoA and RoE of 1.8% and 15.7% by FY24," said IIFL Securities.

Brokerage firm JM Financial has also maintained a 'buy' call on the stock but cut the target price to ₹1,270 from ₹1,325.

JM Financial underscored that over the last few years, the management has taken steps in the right direction in terms of risk calibrated growth approach, retailization of deposit profile and balanced fee mix which should start bearing fruits incrementally, resulting in improvement in the return profile of the bank.

"We expect credit costs to moderate from to 1.6% and 1.4% for FY23 and FY24, respectively, and see RoA and RoE to gradually improve to 1.9% and 16.5% respectively by FY24E. The stock trades at inexpensive valuations of 1.1 times FY24E BVPS and we expect the stock to rerate upwards aided by steady delivery on growth and return metrics," said the brokerage firm.

Brokerage Prabhudas Lilladher has also maintained a 'buy' call on the stock with a target price of ₹1,300. It said it expects a loan CAGR of about 16% over FY22-24E with declining provision costs, while deposit accretion remains the key monitorable.

"Over FY22-24E we expect a healthy 33% CAGR in earnings and RoE may enhance from 10% to 15%. Valuation at 1.2 times FY24ABV is undemanding," said Prabhudas Lilladher.

Nirmal Bang Equities has also maintained a 'buy' call with a target price of ₹1,239, highlighting that excluding the flow-through from the restructured pool, collections from the standard pool have been improving.

Nirmal Bang underscored that the bank is targeting credit costs of under 150bps in FY23. Credit growth at 18% YoY was as per guidance, led by corporate loans while consumer banking growth lagged at 13% YoY.

However, the brokerage said, given that there is further scope for improvement in the disbursements run-rate, coupled with the positive outlook for auto OEMs and normalised disbursements in MFI, it expects growth in the consumer banking portfolio to accelerate further compared to 3% QoQ reported in Q1FY23.

"Overall, the credit growth outlook is positive given the strong growth momentum across business units. The bank is guiding for NIM of 4.15-4.25%, which will be driven by the scope for increasing the share of high-yielding portfolios and higher pricing for fresh disbursements. Deposit growth was led by 16% YoY growth in CASA balances. The bank is looking to further improve the share of CASA and overall retail deposits, a key lever for further optimisation of the cost of funds. Asset quality remains under check with no/low foreseeable risks," said Nirmal Bang.

Emkay Global Financial Services has also maintained the buy call but reduced the target price to ₹1,275 from ₹1,350.

The brokerage firm said it had retained a buy call given re-accelerating credit growth, improving return ratios (13-16% over FY23-25E) and reasonable valuations.

"However, the bank will have to focus on proactive communication and reclaiming investor confidence amid regular adverse news flow and an impending MD term expiry by March 2023," said Emkay Global.

According to a MintGenie poll, an average of 43 analysts have a ‘strong buy’ call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking firms and not of MintGenie.