Shares of large-cap banking player IndusInd Bank have been rising in sync with the benchmark Nifty this year so far and brokerages believe the stock can continue to rise in the coming months too.
Year-to-date (YTD), shares of IndusInd Bank are up 12 percent while the benchmark Nifty, too, is up 12 percent. Nifty Bank is up 11 percent YTD.
Brokerage firm Emkay Global has retained a buy call on the stock and raised the target price to Rs 1,375 (from Rs 1,175), which is a 38 percent upside from the current market price of the stock at Rs 999.70 on NSE.
"We believe a resurgent IndusInd with higher retail orientation/risk guards in place should deliver sustainably higher return ratios, providing a good turnaround story to play on," said the brokerage firm.
The brokerage firm expects stress to remain elevated in FY22 amid ongoing COVID-induced disruption, particularly in CV/MFI/LAP/SME portfolio but loan loss provision (LLP) may still trend down to 220bps-120bps over FY22-24E against 380bps in FY21.
"On the corporate front, resolution of retail/construction-linked lumpy corporates, as well as ILFS (Rs 290 crore expected recovery), should be positive. On lumpy telecom exposure (FB+NFB of Rs 3,400-3,500 crore),
the bank believes a successful capital raising could alleviate concerns," said Emkay.
The brokerage firm underscored that the bank wants to bring payments, accounting and loan capability on the table for its customers and thus would look at fintech tie-up/strategic investments.
It plans to launch a one-of-its-kind digital financing platform for the VF (PV, CV and even tractors) business. The bank has adopted a cylindrical approach on cloud to manage volumes, thereby avoiding outages and has even invested in Enterprise Payments Hub. To evolve as a full-stack digital bank, it plans to incur 5-7 percent of opex on tech against the current level of 2-4 percent, said Emkay.
Global brokerage firm CLSA has a buy call on the stock with a target price of Rs 1,325 and finds the impact of the second wave of COVID-19 manageable.
"With core PPOP (pre-provision operating profit) to loans of 4.8 percent and normalised credit costs assumption of 150-160 bps over FY23/24, we expect IndusInd Bank to deliver return on equity (RoE) of 15 percent. Current valuation at less than 1.5 times FY23 book is undemanding," CLSA said.
"Liability de-bulking continues, but unlike FY21, IndusInd Bank intends to reduce its cost of deposit gap with peers in FY22, which should help offset any yield pressures from the lowering risk in the book," said CLSA.
Brokerage firm Nirmal Bang has a buy call on the stock with a target price of Rs 1,289. It highlighted that the majority of stress is expected in the first half of FY22.
"FY22 credit cost will be lower than FY21. Half of the FY21 provisions were one-off and are not expected to be recurring. The bank intends to increase the provisioning buffer further and strengthen the balance sheet," Nirmal Bang said.
On the technical front, Indusind Bank has been stuck in a broader range in between Rs 960 to Rs 1,050 for the last 26 trading sessions and gone isolated even after the market volatility, Chandan Taparia, Vice President and Derivatives Analyst at Motilal Oswal Financial Services pointed out.
"However, the medium-term trend is positive and the short-term trend is rangebound which attracts buying emerging at declines. Now, a range breakout is required for the stock to commence the next leg of the rally,"
Taparia said.
He has a hold call on the stock and advises buying on declines.
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