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IndusInd Bank Falls To Lowest In A Month After Q3 Results, Analysts Maintain Ratings

IndusInd Bank shares fell as much as 4.43 percent to Rs 1,416.00 apiece, the lowest since Dec. 11, 2019, a day after Q3 results.



Pedestrians walk past an IndusInd Bank Ltd. branch in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)
Pedestrians walk past an IndusInd Bank Ltd. branch in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)

Most brokerages retained their ratings on IndusInd Bank Ltd. even as the private lender’s third-quarter profit took a hit due to higher provisioning.

In a conference call after the earnings announcement, the bank told analysts that it has provisioned Rs 240 crore for two fraud accounts—Dewan Housing Finance Corporation Ltd. and Cox & Kings (India) Ltd. The balance provisioning of Rs 720 crore on these two accounts has been adjusted from reserves and will be amortised through profit and loss account over the next three quarters, it said.

On Wednesday, IndusInd Bank shares fell as much as 4.43 percent to Rs 1,416.00 apiece—the lowest since Dec. 11, 2019.

Here’s what brokerages have to say about IndusInd Bank’s Q3 Results 2019-20:

IndusInd Bank Falls To Lowest In A Month After Q3 Results, Analysts Maintain Ratings

HSBC

  • Expect moderation in slippages over next few quarters.
  • Most corporate slippages from bank’s earlier disclosed stressed exposures.
  • Strong operating performance led by loan growth, margins, cost-to-income ratio.
  • Valuation at 2.4x FY21 book value per share and 13.7x FY21 earnings per share estimate (much below historical average) discounts elevated stress to continue.
  • Maintain ‘Buy’; target price at Rs 2,000.

Morgan Stanley

  • Core operating profit was “good”, but elevated slippages caused weak asset quality.
  • Key negative was higher than expected slippages.
  • Uncertain asset quality could keep the stock volatile in the near term, but we see strong returns over one year given strong capital, pre-provisioning operating profit, and return on equity (despite elevated credit costs).
  • Remain ‘Overweight’; maintain target of Rs 1,800.

UBS

  • Asset quality pressures are showing up.
  • Profit before tax would have been lower adjusted for provisions against fraud losses of Rs 720 crore via reserves.
  • Profit before tax would have declined by 34 percent year-on-year if the entire provisioning on these two fraud accounts was taken through profit and loss account (versus reported profit before tax growth of 12.7 percent).
  • Cautious on the stock given weak funding franchise and asset quality risks.
  • Management guidance on credit cost of 60-70 basis points in FY21 appears less assuring (205 bps in Q3).
  • Maintain ‘Sell’, target at Rs 1,210

Antique

  • Higher-than-expected slippages, elevated provisions key disappointment.
  • Provisions on fraud accounts to be amortised over next three quarters through profit and loss account.
  • Balance sheet growth picks up sequentially.
  • Maintain ‘Buy’, target at Rs 1,700 per share.

Edelweiss

  • Higher slippages, rise in special mention accounts and mark-down of reserves for fraud disappointed.
  • Higher recoveries and write-offs kept headline asset quality steady.
  • Business momentum improved with growth backed by microfinance and corporate segments.
  • Better margins and steady core fee aided core profitability.
  • Despite some concerns on asset quality, we believe earnings accretion from the merger (yet to crystallise), superior growth and improved revenue traction will drive earnings.
  • Maintain ‘Buy’; target at Rs 1,803

Emkay

  • Loan growth remains subdued at 20 percent year-on-year (12 percent on a merged basis), dragged by corporate/vehicle finance book.
  • Growth in the loan against property book is re-accelerating.
  • Savings account growth too re-accelerated to 30 percent year-on-year/12 percent quarter-on-quarter.
  • Higher non-performing asset formation led by corporate stress.
  • Consumer finance slippages too have risen to Rs 710 crore from Rs 620 crore, mainly due to microfinance and commercial finance book.
  • Maintain ‘Buy’, target at Rs 1,725