Brokerages Raise Price Targets On IndusInd Bank Despite Bad Loan Dampener 

IndusInd Bank Ltd. rose after brokerages raised their price targets on the stock after the private lender met analysts’ estimates in the June quarter.

Brokerages including Credit Suisse, CLSA, Nomura and Jefferies raised their price targets by 9.1-22.4 percent, despite the sequential rise in bad loans. Jefferies also upgraded IndusInd Bank to ‘Hold’ from ‘Underperform’.

Gross non-performing assets rose 16 basis points in the April to June quarter from the previous three months to 1.09 percent as two accounts slipped from the restructured category into nonperforming assets category. However, restructured advances fell from 0.37 percent in the March quarter to 0.17 percent. The Mumbai-based bank reported 26.5 percent jump in profit to Rs 836.5 crore over the year-ago period, fueled by an increase in net interest income.

Also Read: IndusInd Bank Scores Well On All Parameters In April-June Quarter

Here's what brokerages had to say about IndusInd Bank post earnings:

CLSA

• Rating: Maintains 'Buy’.
• Target price: Raised to Rs 1,870 per share from Rs1,680.
• The 21 percent quarter-on-quarter rise in nonperforming loans was a tad disappointing, but the ratio is low at 1.1 percent with high coverage.
• Strengthening current account-savings account franchise is helping to de-risk the book.
• Will watch out for asset quality in new retail segments like personal loans, credit cards and tractors where bad loans have risen due to demonetisation/collateral issues with farm-loan waivers.
• Raise earnings by 1-2 percent and see 25 percent compounded annual growth in FY17-20.
• Retain IndusInd Bank among top sector picks.

Credit Suisse

• Rating: Maintains ‘Outperform’.
• Target price: Raised to Rs 1,800 per share from Rs 1,650.
• IndusInd's profit growth was in-line with estimates, even as credit cost was high due to higher slippages.
• Expect return on equity to expand from current 16 percent to more than 18 percent next year.
• Rising RoEs should help support premium valuations.

Macquarie

• Rating: Maintains ‘Outperform’
• Target price: Unchanged at Rs 1,625 per share.
• Earnings in-line, marginal negative surprise on asset quality.
• Stressed assets declined marginally.
• Medium and heavy commercial vehicles to remain weak in July-September quarter also and is expected to pick up in the second half.
• The bank is well on track to achieve its stated target of more than 2.4 percent for return on risk-weighed assets by FY20.
• Risks showing up in the microfinance book. The bad loans rose from zero to Rs 31 crore, on which the bank has made provisions of Rs 28 crore.

Morgan Stanley

• Rating: Maintains ‘Overweight’.
• Target price: Unchanged at Rs 1,750 per share.
• Rise in provisions not disturbing.
• Higher provisions and muted vehicle loan growth were the softer aspects this quarter, but do not expect them to continue.
• The bank sounded confident about asset quality trends in the coming quarters.
• Key positives: Stable margins, strong savings deposit/fee growth, higher capital.
• Remain positive on the stock, given strong earnings growth and improving profitability.
• Expect the stock to double in three years and become a financials mega-cap (with market capitalization of more than $20 billion) by financial year 2019-20.
• Reiterate IndusInd as top pick.

Nomura

• Rating: Maintains ‘Buy’.
• Target price: Raised to Rs 1,850 per share from Rs 1,640.
• Marginal asset quality miss, but manageable.
• Focus on return on risk-weighed assets showing up.
• Risks in Insolvency and Bankruptcy Code-related cases and microfinance/telecom book are low, hence risks to 60 basis points credit cost guidance remain low.
• Improving net interest margins with lower capital consumption key positive.

Jefferies

• Rating: Upgrades to ‘Hold’ from ‘Underperform’.
• Target price: Raised to Rs 1,500 per share from Rs 1,225.
• Confidence on the sustainability of longer-term profitability has improved on the back of normalizing trends.
• Utilisation of past provisions to improve provision coverage is a positive development.
• Valuations are at the top of the range.
• Expect the stock to deliver returns in-line with earnings growth.

Shares of IndusInd Bank rose as much as 1.24 percent to its fresh all-time of Rs 1,580.