On Friday, October 25, the intraday share price of IndusInd Bank fell 19% to a new 52-week low of ₹1,034 per share. This drop came after the bank’s poor September quarter results, which fell short of Street projections across the board and caused analysts to reduce their stock target prices.
The lender’s declaration that it would not fulfil its full-year loan growth forecast after an unanticipated reduction in second-quarter profits due to stress in microfinance loans is another factor contributing to the decline in bank shares.
According to domestic broking firm Motilal Oswal, the bank had a poor quarter, with slower growth in higher-yielding loans, lower other income, and greater provisions as a result of setting up a ₹5.25 billion contingency buffer.
Due to slow growth in high-yielding assets and growing expenses, the bank’s net interest margin (NIM) shrank significantly. As new slippages continued to be high, mostly in the consumer finance sector, asset quality ratios slightly declined.
Motilal Oswal maintained its ‘Buy’ rating but lowered its target price for the stock to ₹1,500 per share due to the bank’s poor performance. Likewise, Nuvama Institutional Equities downgraded the stock from ‘Buy’ to ‘Hold,’ reducing its target price to ₹1,290 per share.
“In Q2, IIB posted the weakest earnings in the sector so far with moderating loan growth, a QoQ fall in NII, a rise in slippage, 30DPD in MFI, a sharp increase in credit cost, and low fees for a second quarter in succession. Even excluding one-time provisions of ₹5.25 billion, PAT was below consensus. RoA stood at 1%, down from 1.7% QoQ. CET1 fell 94 bps QoQ due to a hike in MFI risk weight from 75% to 125%,” said Nuvama.
The broking thinks the stock will continue to underperform despite the recent strong price drop since MFI stress is predicted to stay high in Q3 and fee income has been weak for the last two quarters.
HSBC, Jefferies, and global broking company Goldman Sachs have all trimmed their target prices for the stock to ₹1,500, ₹1,470, and ₹1,430 per share, respectively. The target price of Macquarie has also been reduced to ₹1,690 per share.
In the meantime, IIFL updated its target price to ₹1,300 per share and demoted IndusInd Bank to ‘Add’. Nomura has lowered its target price for the bank to ₹1,220 per share while maintaining its ‘Neutral’ rating.
Q2 earnings
Higher-than-expected provisions, including a contingency provision of ₹525 crore for the quarter, affected the bank’s reported PAT of ₹1,330 crore for Q2 FY25, a 40% YoY decline. The bank currently has a total contingency buffer of ₹1,525 crore as of September 2024.
A rise in slippages within the consumer finance segment, which accounted for ₹1,680 crore, was the main driver of the 17.1% QoQ increase in fresh slippages to ₹1,798 crore.
As a result of increasing fresh slippages, the gross non-performing assets (GNPA) and net non-performing assets (NNPA) ratios rose by 9 and 4 basis points, respectively, QoQ, to 2.11% and 0.64%.
The bank’s PAT for the first half of FY25 was ₹3500 crore, a 19% YoY decrease. According to analysts, the second half of FY25 would see a PAT of ₹3880 crore, a 17% YoY decline.
While other income decreased by 10.5% QoQ to 2185 crore, missing projections, net interest income (NII) increased by 5% YoY to 5350 crore, which was in line with expectations. NIM experienced a significant 17 bps QoQ contraction to 4.08%.
The bank had previously projected an 18–22% increase in loans for FY25. However, analysts now project loan growth to reach about 13% because of its cautious stance on unsecured lending.
