IndusInd Bank stock soars 10% as Morgan Stanley raises target price by 14%

Shares of IndusInd Bank soared 10 per cent to hit an intra-day high of Rs 1,072 apiece on the BSE on Wednesday after global brokerage Morgan Stanley raised target price on the stock by 14 per cent. The stock settled 7.6 per cent higher at Rs 1,049.5 per share as against a 0.92 per cen rally in the benchmark S&P BSE Sensex at 50,256 levels. 

"We value IndusInd using a base-case price to adjusted book value valuation methodology (vs. probability-weighted price to adjusted book value valuation methodology previously). We have revised our price target from Rs 1,075 to Rs 1,225," analysts at Morgan Stanley in a report dated February 2.

In its bull-case scenario, Morgan Stanley sees IndusInd Bank's stock price rising to Rs 2,030 levels in the next one-year, while a bear-case scenario pegs the stock price at Rs 550.

On January 29, the lender had reported a 37 per cent fall in net profit to Rs 830 crore in the third quarter ended December 2020 as provisions and contingencies swelled 78 per cent YoY to Rs 1,854 crore from Rs 1,044 crore set aside last year. It had posted a net profit of Rs 1,309 crore in the quarter ended December 2019.

In a statement, the bank said pursuant to an order by the Supreme Court, no new non-performing asset (NPA) was recognised since September 1, 2020. "If such NPAs were recognised, the pro forma gross NPA would have been at 2.93 per cent and the pro forma net NPA, after considering provisions allocated, would have been 0.70 per cent," it said in a statement.

The resultant pro forma provision coverage ratio (PCR) is 77 per cent while total loan-related provisions stood at 111 per cent of pro forma GNPAs, according to investor presentation.

"Factoring more upfront asset pain recognition, while FY21E BV is revised down 2 per cent, FY22/23E is revised up 1 per cent/2 per cent. Given better-than-anticipated recovery, we revise our target multiple to 1.5x P/B (earlier 1.2x). Rolling over to June 2022E our revised target price is Rs 880 (earlier Rs 665). Valuations at 1.5x FY22E P/B capture the improvement," said analysts at Edelweiss Securities in a post-result update with a 'Hold' rating on the stock.

Those at ICICI Securities, meanwhile, have 'Add' rating on the stock with a target price of Rs 975 as the bank vindicated its focus on prudent provisioning, ramped up of a granular deposit base, reduced corporate exposure, and drove core fee income in Q3FY21.

Prabhudas Lilladher, too, upgraded the stock to 'Buy' with a target price of Rs 1,026 apiece despit the restructuring outcome being at 1.8 per cent of loans (incl. invoked), which is higher than industry, and pro-forma slippages of 1.24 per cent of loans, also slightly higher driven by unsecured retail/MFI/VF. 

"Our new estimates on credit cost of 350bps is with view of bank front loading provisioning to retain higher PCR and cover hits from NPAs and should revert to much lower number ahead driving return ratios. Hence, we upgrade to BUY given the recent decline with retained TP of Rs 1,026 based on 1.5x Mar-23 ABV," the brokerage noted.

Since the result announcement, the stock price of IndusInd Bank has surged 15 per cent on the BSE, as against a 7 per cen rally in the S&P BSE Sensex.