Reduce IndusInd Bank; target of Rs 725: Emkay Global Financial

Emkay Global Financial's research report on IndusInd Bank

This is in view of the spate of top management resignations, including the MD & CEO, which should increase business/margin disruption including risk of another round of deposit run-down, impact on asset quality, middlemanagement attrition, and possibility of appointment of an RBI nominee on the Board as well as a PSU banker as MD & CEO (similar to Bandhan/RBL). The stock had recently pulled back, given that the assurance by the incumbent MD & CEO— on smooth management transition and no more skeletons in the cupboard (recent MFI concerns being looked into raise new risk)—seems to be challenged now. We understand that the Board has begun the CEO/ED hiring process, which may though take at least 3-6M to seek RBI approval; thus, business would be hit in the interim and the recovery process prolonged, thereby making the risk-reward unattractive for IIB at current levels vs some peers.

Outlook

We downgrade IIB to REDUCE from Add, cutting our TP by 9.4% to Rs 725 (from Rs800).

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