IndusInd Bank Shares Plummet 18%: Time To Buy, Sell, Or Hold?
IndusInd Bank’s shares plummeted nearly 18 percent in early trade after reporting its financial results for the second quarter today (Friday). The shares of the bank were down 17.73 percent to Rs 1,052.15 on the Bombay Stock Exchange (BSE) at 10:21 am.
In the second quarter, IndusInd Bank‘s net profit plunged 39 percent year-on-year to Rs 1,325 crore fell markedly short of what the market had expected. In comparison, the profit stood at Rs 2,181.47 crore in the same quarter a year ago.
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IndusInd Bank Q2 Results: A Recipe for Uncertainty 🍿
So, IndusInd Bank’s gross NPAs rose 7% QoQ from Rs.71 bn (2.0%) to Rs.76 bn (2.1%). Sure, it looks “marginal” on the surface – just a casual Rs.5 bn spike. But wait, the MFI book NPAs shot up 14%! Is this just a blip or a… pic.twitter.com/JJvnmASp6s
— Saday Sinha (@SadaySinha15) October 24, 2024
Despite the sharp profit decline, the bank’s net interest income (NII) showed modest growth rising by 5 percent year-on-year to Rs 5,347 crore. However, net interest margin (NIM) contracted to 4.08 percent, a drop of 21 basis points (bps) from 4.29 percent a year ago and 18 bps lower on a quarter-on-quarter basis.
The asset quality also deteriorated during the quarter as gross non-performing assets (NPA) increased to 2.11 percent while net NPA rose to 0.64 percent compared to 1.93 percent and 0.57 percent respectively in the same period last year.
When investors are skeptical about the decision to buy, sell or hold, brokerage firm Jefferies continues to recommend a ‘Buy’ on IndusInd Bank but has lowered its target price from Rs 1,750 to Rs 1,470. As per Jefferies, weaker asset quality and rising provisions have hurt profitability and softer lending activity has impacted the bank’s topline.
Jefferies expects these pressures to persist through FY25 with a potential recovery in FY26-27. The brokerage has also cut earnings estimates by 13-25 percent.
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The analysts say that the bank’s weak quarterly performance and challenging outlook are likely to weigh on returns with the expected Return on Equity (RoE) downgraded to 11-13 percent for FY25-27 from the previously anticipated ~14 percent as analysts continue to be cautious, pointing to concerns about weak asset quality and earnings.
On the contrary, Nuvama Wealth and Investment Limited (India’s largest wealth management platform) has downgraded IndusInd Bank to ‘Hold’ from ‘Buy’ and cut its target price to Rs 1,290 from Rs 1,690 deteriorating asset quality, particularly in the MFI sector where the 30-day past due (30DPD) rate rose to 4 percent from 2 percent QoQ contributed to the downgrade.
