The broking firm Jefferies has a target price of Rs 2,070 on the stock of IndusInd Bank, an upside of 26% from the current market price. It has kept the rating unchanged to “Buy”.
According to the brokerage house, the bank’s new non-performing loans were “disappointing” as they came higher. Mostly, they rose in the commercial vehicle loans segment after the Chennai floods but it believes they can be “recouped.”
Jefferies has decreased the earnings for the company marginally. It expects a 20% profit on a compounded annual growth rate basis over FY24 – FY26, which will be led by revenue growth and credit cost moderation, also benefitting from easing rates. These in turn can help in improving return on asset to 1.9% and return on equity to 16% in FY25.
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On Thursday, the bank reported its third-quarter earnings. The bank’s net profit rose 17% year on year to Rs 2,298 crore for the quarter. Jefferies said that the bank’s net interest income rose 18% and was “the best across our coverage.”
IndusInd Bank remains the brokerage house’s top pick in the banking sector.
In the long term, the brokerage house views potential in the bank to ramp up lending, defend margins, and lower its credit costs.
However, “the bank needs to strengthen the deposit franchise due to higher concentration and risk aversion among wholesale depositors,” said Jefferies.
On the risk front, deterioration in asset quality of commercial vehicle loans and microfinance are downside for the bank. Also, the loss of current accounts and savings accounts from government and commercial clients is a concern.
Another broking firm InCred Equities downgraded the stock to “Hold” and also decreased the target price to Rs 1,750 from Rs 1,800, earlier. It said the bank doesn’t have any “favourable risk reward”.
InCred Equities expects 16% net profit over FY23 – FY26 due to flat margins and steady credit costs. The brokerage sees better-than-expected growth as an upside risk, but an increase in credit costs on the flip side.
