Asset quality has worsened in the September quarter, but experts feel that valuation is attractive at 2.1x FY21 adjusted price-to-book.
Global brokerages, including CLSA, Jefferies, Morgan Stanley, and HSBC, maintained their ratings on IndusInd Bank but slashed the target price after weak September quarter results.
IndusInd Bank posted a 3.4 percent sequential decline in the September quarter standalone profit to Rs 1,383.37 crore against Rs 1,432.5 crore in the June quarter, but on a year-on-year (YoY) basis, it jumped over 50 percent.
September profit declined to Rs 1,383.37 crore compared to Rs 1,432.5 crore in the June quarter, on year-on-year (YoY) basis, it jumped 69 percent, the results released on October 10 said.
The net interest income, the difference between interest earned and interest expended, grew by 2.3 percent quarter-on-quarter (QoQ) (32 percent sequentially) to Rs 2,909.5 crore.
Asset quality, a big concern for the banking sector, worsened the September quarter, but experts say the valuation is attractive at 2.1x FY21 adjusted price-to-book value, while a rebound in earnings and stability in asset quality could drive a re-rating.
Here’s what brokerage firms recommend post-September quarter
Morgan Stanley: Overweight
Morgan Stanley maintained its overweight rating on IndusInd Bank, but slashed its target price to Rs 1,700 from Rs 2,000.
The global investment bank has also reduced earnings estimates after core pre-provisioning operating profit (PPoP) missed Morgan Stanley's estimate by 7 percent.
The private bank remains Morgan Stanley’s preferred pick among mid-sized banks. The bank witnessed mixed asset quality trends given exposure to stressed companies.
Jefferies: Hold rating
Jefferies maintained its hold rating on IndusInd Bank but slashed the target price to Rs 1,405 from Rs 1,480.
The balance sheet is showing clear signs of deterioration on systemic liquidity issues. The risk-reward is better but not enough to merit an upgrade, a note said.
The FY20-22 PPoP estimate has been cut by 6-10 percent. The global investment bank expects return on assets (ROA)/ return on equity (ROE) to slip above 2 percent, and 20 percent by FY22.
CLSA maintained its buy rating but slashed its target price to Rs 1,950 from Rs 2,160.
The global investment bank lowered earnings estimates as well. The profit missed CLSA estimates due to higher credit costs, partly to raise non-performing loans (NPL) coverage.
The operating performance was weak, with slower loan growth, volatility in CASA, and higher slippage. The key positive was the reduction in exposure to stressed companies, and healthy auto loan growth.
The corporate book readjustment could remain for 1-2 quarters. The global investment bank slashed FY20 estimates by 9 percent to factor in a lift in NPL coverage. Valuation is still attractive at 2.1x FY21 adjusted price-to-book value.
HSBC maintained its buy rating on IndusInd Bank but reduced the target price to Rs 1,920 from Rs 2,020.
Asset quality remains largely stable amid concerns on exposure to weak groups. The bank could deliver an ROE of 19-20 percent, with a loan growth above 20 percent on a YoY basis.
The global investment bank revised FY20/21 earnings per share (EPS) estimates by - 3%/+2%. The benefits of low tax rates got offset by lower growth and conservative provisioning. The valuation still suggests extreme stress.
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