IndusInd Bank soars 9% after UBS upgrades the stock to 'Buy' from 'Sell'

Shares of private lender IndusInd Bank jumped 9.1 per cent to Rs 620 apiece on the BSE on Thursday after global agency UBS upgraded the stock to 'Buy' from 'Sell'. From its recent low of Rs 338.2 (on closing basis), hit on May 22, 2020, the stock price of the lender has surged 68 per cent on the BSE till Wednesday, as against 27 per cent rise in the benchmark S&P BSE Sensex during the period, BSE data show.

"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 reprot dated August 27. They have revised the target price to Rs 675 from Rs 360.

According to the brokerage, relief measures announced by the government and the RBI (additional liquidity infusion, guaranteed funding for SMEs, and loan restructuring rules for all segments) have reduced tail risks in the banking system. The economy, it believes, is recovering gradually, which would lower the 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," the report said.

For June quarter of FY21, the bank reported a 64.37 per cent year-on-year (YoY) decline in consolidated net profit at Rs 510.34 crore, as against a net profit of Rs 1,432.50 crore in the corresponding quarter last year. Its net interest income (NII) for the quarter increased by 16 per cent YoY to Rs 3,309 crore, while Net interest margin improved to 4.28 per cent from 4.25 per cent for Q4FY20.

"Total provisions for Q1FY21 was at Rs 2,259 crore from Rs 431 crore a year ago. In the preceding quarter, Rs 2,440 crore was kept aside as provisions. As on June 30, the bank held Covid provisions of Rs 1,203 crore, including provision made during the quarter of Rs 920 crore," the bank said in a statement.

At 2:08 pm, the stock was quoting at Rs 610, up 7.4 per cent on the BSE, as against 0.35 per cent gain in the S&P BSE Sensex. A combined 41.42 million shares had changed hands on the counter on the NSE and BSE till the time of writing of this report.