Emkay Global Financial's research report on IndusInd Bank
IndusInd Bank (IIB) reported a sharp 42% earnings miss in 2Q with PAT/RoA at Rs13.3bn/1%, mainly due to slower credit growth (13% YoY), lower fees (partly due to lower penal fees), and higher LLP. Higher provisions in 2Q were primarily due to elevated MFI stress across players and partly to shore-up contingent provision buffer (Rs5.3bn in 2Q, though little later than guided) to Rs15.3bn/0.4% of loans. Gross slippages were higher at 2.1% (vs 1.8% in 1Q) largely due to stress in MFI and some slip-up in CE, Card, and TW, leading to 9bps QoQ uptick in GNPA ratio to 2%. Going forward, the bank guides for calibrated growth mostly led by secured loans, and expects asset quality relief by 4Q and so also on provisions. Factoring in slower growth, fees, and higher LLP, we cut earnings for FY25/26/27E by 17%/10%/3%.
Outlook
We cut our TP to Rs1,650 from Rs1,800, valuing the bank at 1.8x Sep-26E ABV. However, we retain BUY on the stock given its cheaper valuation and expected steady improvement in RoA to 1.8% in FY27E from 1.4% in FY25E, led by better margins benefiting from the rate-cut cycle and contained LLP.
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