IndusInd Bank Share Price Slumps 19%, Hits 52-week Low Following Weak Q2 Results; BUY?

The shares of IndusInd Bank Ltd. experienced a dramatic decline of up to 19% on October 25, 2024, following the release of the bank's disappointing quarterly results after market hours on the previous day. The private sector lender reported a staggering 39.5% year-on-year drop in its consolidated net profit for the second quarter of FY25, which fell to Rs 1,331 crore compared to Rs 2,181 crore in the same quarter last year.

Despite a marginal growth in net interest income (NII), which rose by 5% year-on-year to Rs 5,347 crore, the overall profit slump indicated significant pressures on other financial metrics. NII, a key indicator of a bank's profitability, showed growth; however, it fell short of market expectations, raising concerns among analysts and investors alike. Furthermore, the bank's net interest margin (NIM) decreased from 4.29% in the previous year to 4.08%, reflecting mounting pressure on profitability.

The bank's asset quality also deteriorated over the June quarter, with the Gross Non-Performing Assets (NPA) increasing to 2.11% from 2.02%. In absolute terms, the Gross NPA rose to Rs 7,638.5 crore, up from Rs 7,126.8 crore in June, while the Net NPA increased to Rs 2,282 crore from Rs 2,095 crore.

In response to these challenges, provisions increased, rising by 87% year-on-year and 73% sequentially to Rs 1,820.1 crore. The operating profit also took a hit, declining by 7.2% from last year and nearly 9% sequentially, amounting to Rs 3,599 crore.

Despite the drop in profit, IndusInd Bank recorded a loan growth of 13% year-on-year, reaching Rs 3.57 lakh crore. Deposits also saw a robust increase, up 15% to Rs 4.12 lakh crore.

In light of the disappointing quarterly performance, various financial analysts have adjusted their ratings and price targets for IndusInd Bank. Nomura has maintained its "neutral" stance on the stock but significantly lowered its price target from Rs 1,580 to Rs 1,220, labelling the recent quarter as weak and the outlook as "challenging." They have revised their Return on Equity (RoE) expectations from 14% to a range of 11-13% for financial years 2025 to 2027, although they noted that the absolute downside risk is limited due to 'benign' valuations.

Macquarie has retained its "outperform" rating with a price target of Rs 1,690, although it acknowledged that worsening asset quality in the microfinance institution (MFI) book could pose risks to its financial year 2025 Return on Asset (RoA) estimate of 1.8%. Meanwhile, Citi maintained its "buy" rating but reduced its price target from Rs 2,010 to Rs 1,630, citing expectations of lower loan growth and modest fee income, leading to an 18% to 22% cut in earnings estimates for financial years 2025 to 2027.

Currently, out of the 50 analysts covering IndusInd Bank, 41 still hold a "buy" rating on the stock, with eight advising a "hold" and one recommending a "sell." As of 10:50 am on the National Stock Exchange (NSE), IndusInd Bank shares were trading at Rs 1,045.65, reflecting a massive decline of 18.50%. Over the past year, the stock has delivered negative returns of nearly 10%.