Shares of private sector lender IndusInd Bank have given exceptional returns to its investors since June end. The stock has surged over 45 percent to ₹1,108 currently from its 52-week low of ₹763, hit on June 23, 2022.
The stock has risen 25 percent in 2022 YTD and 12 percent in the last 1 year. In the 8 months of the year, the stock has given positive returns in 5 of them and negative in 3. The stock surged the most in July, up over 30 percent followed by another 6 percent rise in August. However, in September so far, it has lost nearly 2 percent.
However, the long-term trend of the stock has been negative. It has shed over 45 percent in the last 5 years. This is mainly because of its massive fall in 2020. Just in March 2020, the stock lost nearly 70 percent of investor wealth and this was not just due to the COVID outbreak. In March 2020, the lender revealed in an investor call that it has lost 10-11 percent of its deposits since Yes Bank Ltd crumbled earlier that year. A major concern was the bank’s exposure to vulnerable sectors against the backdrop of the lockdown to contain the covid-19 spread.
However, since then the bank has recovered drastically as well as improved its fundamentals. The stock has fallen as low as ₹235.55 in March 2020. It has surged over 370 percent since then, making it up to its investors.
In the June quarter, IndusInd Bank had posted a 61 percent rise in its net profit at ₹1,631 crore on the back of strong loan growth and falling provisions. The lender had posted a net profit of ₹1,016 crore in the corresponding period a year ago. Asset quality also improved with the gross non-performing ratio dropping to 2.35 percent versus 2.88 percent in the year-ago period. The net NPA ratio came in at 0.67 percent.
Going ahead, brokerage house Anand Rathi retains a buy call on the stock on the back of pick-up credit growth and bright earnings outlook. It has a target price of ₹1,300 for the stock, implying a potential upside of 17 percent.
Immediately after the first Covid wave, IndusInd Bank was severely hit on both asset and liability sides. Its turnaround in the last few quarters has been stellar given that one-third of its assets books were impacted and the strong run on deposits on its liability side, noted the brokerage.
"Stress on its vehicle finance (VF) and microfinance institution (MFI) books were much lower than the industry and strong traction was seen in deposits. We expect credit growth and profitability to be strong on account of revived demand in MFI and vehicle finance; bright corporate outlook on the government’s infra push; sturdy balance sheet (72 percent coverage, ₹3000 crore provision buffer, 1.2 percent of loans) and strong liquidity and capitalisation," explained Anand Rathi.
On IIB’s good disbursement in vehicles and Miwoks in Q1, the brokerage expects the traction to continue as both industries are experiencing revived demand. Corporate credit is expected to pick up on the government’s infra push till the 2024 general elections, it added. It sees overall credit growth continuing strong in the medium term.
Anand Rathi further noted that in the rising interest-rate context, the lender's NIM is expected to hold above 4 percent. Higher margins and the expected moderation in operating expenses would keep operating profits strong, it highlighted.
On the good operating performance, a pick-up in business growth and the benign credit-cost cycle, profitability is expected to be robust, the brokerage said. It estimates a 1.7 percent return on assets each for FY23 and FY24.
However, lumpy slippage in the corporate book and volatility in asset quality from the MFI book are key risks, noted the brokerage.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.