The trouble started brewing for private sector lender IndusInd Bank when it posted its third quarter results for this fiscal.
The trouble started brewing for private sector lender IndusInd Bank when it posted its third quarter results for this fiscal. Although it registered a jump of 33% in consolidated net profit, all eyes were on the worsening asset quality and a 72% surge in provisioning. Since then the share price has tanked 76.32% from a little over Rs 1100 per share to Rs 350 apiece at the end of trading on March 31. In an analyst call earlier this week the lender highlighted that it has lost 11% deposits, largely by government accounts.
Despite its troubles, brokerages are not letting go of the scrip and pin high hopes on the bank in the coming quarters with a new Chief Operating Officer taking charge. Analysts at ICICI Securities revised the target price for the stock from Rs 1796 to 1268, however, from the current market price that still translates to a 262% upside. “We believe the impact on asset quality may be for a short term and that it will be important to track borrower behaviour after completion of the moratorium period. Working capital loans and unsecured loans like PL and credit cards are at higher risk of default,” the brokerage said.
Apart from 11% deposits lost by the lender, withdrawals from corporate deposits were also witnessed. However, ICICI Securities notes that the bank was able to replace the withdrawal of deposits by longer-duration refinance / FX borrowings, bank CDs, excess SLR and call money. “Despite some concerns on stressed telecom accounts, higher vehicle book and uncertainty around COVID-19, we believe IndusInd Bank is a good value proposition given it is trading at 0.9x P/ABV FY21E,” said ICICI Securities while recommending to buy the stock.
Emkay Global sees the fallout of the Yes Bank crisis while talking about the loss of deposits for IndusInd Bank. “ Eventually the bank plans to focus on retail deposits (via expanding branches), which will take time to build and thus the bank’s credit growth will be calibrated, tracking deposit momentum and not vice-versa as it happened in the past. The bank also plans to rebalance its book toward consumer banking, which should lead to margin/RoA expansion in the long run,” said Emkay Global in a research note. Emkay has a trimmed down target price of Rs 630, in comparison to that of ICICI Securities. Motilal Oswal too has a buy rating on IndusInd Bank with a target price of Rs 800.
With Sumant Kathpalia taking over as the new CEO of the bank last week, the bank is trying to reduce its reliance on bulk and government deposits by getting in more retail borrowers. The lender hopes that post the 21-day lockdown there will be recoveries in the microfinance loan segment as it witnessed after Kerala Floods and Demonetisation.
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