Shares of India's major private sector lender IndusInd Bank slumped on Monday afternoon after the firm reported Q1 results on Friday. We take a closer look.
Shares of India’s major private sector lender IndusInd Bank slumped on Monday afternoon after the firm reported Q1 results on Friday. IndusInd Bank share price slumped by more than 2.1% to hit the day’s low at Rs 1,477 on BSE this afternoon. IndusInd Bank has reported a 38.3% jump in net profit to Rs 1,433 crore. Notably, the bank’s profit included numbers of IndusInd Financial Inclusion (Erstwhile Bharat Financial Inclusion) and associate IndusInd Marketing and Financial Services. Therefore, the numbers for the quarter are comparable with previous quarters, as the resultant merger with Bharat Financial led to an increase in profit of the priave lender by Rs 213.02 crore. Bharat Financial income for the quarter came in at Rs 667 crore.
Taking stock of the reported results, global firm Citi noted that the benefits of the merger are becoming visible. The merger will lead to a better NIM (Net Interest Margin) and Capital Adequacy Ratio. Bharat Financial’s AUM has reported sluggish growth in the latest quarter as the firm is going slow in some states, noted Citi. Citi has a buy rating on the stock with a target price of Rs 1,980. In the current financial year, Bharat Financial expects to grow its AUM by more than 35%. “We build provisions at 100 bps of loans for FY20,” Citi said, adding that the stock has seen a 12% correction in the last 3 months on concerns of asset quality, a bit overdone.
According to global brokerage firm CLSA, stable asset quality and RoE expansion will drive re-rating on the stock. The firm has a buy rating with a target price of Rs 2,160. CLSA said that the profits are a tad higher than estimates aided by better NII and lower provisions. The slippages at 1.16% of the past year loans are manageable, said CLSA. Notably, IndusInd Bank’s gross NPA rose to 2.15% of the total advances at the end of June 2019, as against 1.15% in the year earlier, and net NPAs increased from 0.51% in the year ago period to 1.23% in the Apr-Jum quarter. CLSA noted that the coverage ratio should have improved from 43%. “We see scope of margin improving with lower costs,” CLSA said, adding that the management has turned cautious on leding. The research firm expects earnings to normalise from FY20, with with RoE moving towards 20 per cent.
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