Shares of IndusInd Bank in intra-day trade on August 27, 2020 spurted up to 9% to day's high price of Rs. 619.85 per share on the BSE. The sharp jump comes as the global agency UBS upgraded the counter to 'Buy' from previous 'Sell' call.
"Recent regulatory relief could help ease the NPL burden for INDUSIND and mitigate the tail risks of accelerated defaults in the near term. The recent capital infusion of Rs 3,300 crore (9.3 per cent dilution) further strengthens the capital buffer. On top of this, we think liquidity risks have reduced as the wholesale funding market is flush with liquidity. Although we expect INDUSIND's business model to change, resulting in lower return ratios (RoA) than past cycles, we think the current valuation (1.0x FY21E P/BV) appears inexpensive and prices in most negatives. We upgrade the stock from Sell to Buy," analysts at the brokerage said in a report dated August 27. They have revised the target price to Rs 260 from Rs 160.
Further as per the broking house, steps introduced by the centre as well as RBI such as infusion of additional liquidity, guaranteed financing window for SMEs via ECLGS and loan restructuring norms have lowered risks in the banking sector. Also as there is seen green shoots in the economy there will be reduced NPL risks. "New rules would give banks more time to build provisions. The recent capital infusion in some banks/non-banking financial companies (NBFC) would be additional cushion. We cut our FY21/FY22 estimates for GNPL formation from 7 per cent/5 per cent to 4 per cent/5 per cent of loans. Bank stocks are down 12-62 per cent YTD and have underperformed the broader markets. We think the sector's downside risks are limited," added the report.
In the Q1FY21, private sector lender posted 64.37 per cent year on year decline in net profit at Rs. 510.34 crore, as against a net profit of Rs 1,432.50 crore in the corresponding quarter last year. NII for the quarter under review, however increased by 16 per cent y-o-y to Rs. 3,309 crore, and at the same time NIM also gained to 4.28% as against 4.25% in the March ended quarter of FY20.
At 2:57 pm, the stock of IndusInd Bank quoted at Rs. 612, up Rs. 43.10 or 7.59%.