IndusInd Bank stock gained 23% in less than 5 months; is there more upside left?
The stock has risen over 4 percent just in January, extending gains for the fifth straight month since September 2023. Between September and January to date, it has advanced 23 percent. Meanwhile, the stock has jumped 37 percent in the last 1 year.
The private sector lender hit its 52-week high of ₹1,694.35 in the previous session, on January 15. With that, it has now rallied over 71 percent from its 52-week low of ₹990.25, hit on February 1, 2023.
Earnings and quarterly update
The private sector lender reported a 22 percent year-on-year (YoY) rise in the September quarter standalone net profit to ₹2,181.5 crore on the back of higher income and lower provisions. The lender reported a net interest income (NII)— the difference between interest earned and expended—of ₹5,077 crore in Q2 FY24, up 18 percent YoY. Its net interest margin (NIM), a key measure of profitability, was unchanged from the previous quarter, at 4.29 percent.
The bank also witnessed a slight improvement in asset quality as compared to the June quarter. Its gross bad loans stood at 1.93 percent of its total advances, down 1 basis point from the preceding quarter. Its net NPA ratio was at 0.57 percent, down 1 basis point from the June quarter.
For the December quarter, the bank’s net advances grew by 20 percent to ₹3,26,741 crore as compared to net advances of ₹2,72,754 crore in Q3FY23. In the preceding quarter (Q2FY24), the net advances stood at ₹3,15,454 crore.
Brokerage views
Motilal Oswal: The brokerage has a ‘buy’ call on the stock with a target price of ₹1,900, indicating an upside of 14 percent.
“IIB has been delivering consistent performance with both asset quality and return ratios improving steadily. The bank is well poised to report further improvement in operating performance as all key vectors (credit cost, margins & opex) continue to move in the right direction, unlike most other banks. The steady loan growth and a more favorable asset mix toward retail will continue to support margins, especially with the shift in the interest rate cycle. Asset quality ratios have improved while continued moderation in slippages, dissolution of restructured assets, and additional contingency buffer of 0.5 percent of loans provide further comfort. IIB is well capitalized with CET-1 of 16.3 percent and any further capital infusion by promoters to increase the stake in the bank would further aid capitalization levels,” said the brokerage.
It estimates IIB reporting a 22 percent earnings CAGR over FY24-26, resulting in a RoA/RoE of 2.0 percent/17.3 percent. IIB remains its preferred BUY in the sector.
Sharekhan: The brokerage also has a ‘buy’ on IndusInd Bank (IIB) with a target of ₹1,850, indicating an around 10 percent upside. The stock has re-rated itself closer to frontline banks and the brokerage expects further re-rating to occur given sustained earnings progression and strengthening of the liability franchise.
The bank is likely to outpace the sector in terms of earnings growth, led by stable margins, strong loan growth visibility, and further improvement in credit costs, said Sharekhan
Emkay Global: The brokerage also has a ‘buy’ rating on the stock, factoring in better earnings/RoE trajectory and margin stability amid the risk of contraction among peers; it raised the target price on the stock to ₹2,000 per share from ₹1,825 earlier, implying a potential upside of more than 18 percent.
Read here: Arvind Fashions stock gains 18% in January so far; is this the right time to buy?
The bank’s management re-emphasised that building a strong retail franchisee is going to be the topmost focus area for the bank over the next 2-3 years and, thus, it aims to reach retail LCR share of 5-52 percent from the current 44 percent and 26 percent a few years back, said Emkay. It has raised its earnings estimates by 1-4 percent over FY24-26E and expects the bank to deliver better Return on Assets (RoA) at 1.9-2 percent, Return on Risk-Weighted Assets (RoRWA) at 2.6-2.8 percent, and Return on Equity (RoE) at 16-18 percent RoE over FY24-26E on the back of healthy growth and stable margins.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.
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Published: 16 Jan 2024, 05:36 PM IST
