IndusInd Bank's stock rally has more legs; up to 35% upside likely: Experts

IndusInd Bank has addressed key issues that were an overhang on the counter at the bourses - the biggest being the reappointment of its managing director and chief executive officer

Shares of IndusInd Bank have seen a turnaround performance thus far in calendar year 2022 (CY22) with the counter rising 38 per cent so far this calendar year (CY22), as against a 0.76-per cent dip in CY21. With this, it has outperformed the Nifty50, and Nifty Bank indices by a wide margin that have gained 2 per cent, and 16 per cent, respectively, during this period.

Going forward, analysts see more legs to the rally as the company addressed key issues that were an overhang on the counter at the bourses – the biggest being the reappointment of its managing director and chief executive officer.

"The proposal to extend Sumant Kathpalia's and MD and CEO tenure by three years has removed the biggest near-term overhang on the stock. That said, short-term investors should start booking profit partially after the recent run-up, but long-term investors should stay put," said Gaurav Jani, research analyst at Prabhudas Lilladher.

Since the exchange notification regarding the MD & CEO's reappointment, the stock has jumped 2.3 per cent, as against 0.8 per cent dip in the Nifty50 index. In the past 3 months, the counter has surged 53 per cent on the National Stock Exchange (NSE), as against 13.5 per cent rally in the Nifty50 index, and 24 per cent in Nifty Bank index.

Peer stocks HDFC Bank, ICICI Bank, Axis Bank, and Kotak Bank, meanwhile, advanced between 13.5 per cent and 31.4 per cent during the period, data shows.

Turnaround 2.0

At the fundamental level, analysts say IndusInd Bank is undergoing a transformational phase and is well positioned to benefit from the upcycle in some of its key domain areas like micro-loans (MFIs) and commercial vehicles (CVs). Besides, the bank's new retail-centric initiatives, outside these segments, are showing healthy results, such as in non-MFI unsecured lending and home loans.

“While the Gems & Jewellery sector, within the corporate segment, is likely to see some growth headwinds this year, the overall growth outlook for corporate credit is positive too. The consumer banking/retail loan growth is expected around 17-18 per cent CAGR over the medium-term,” wrote analysts at Nirmal Bang Institutional Equities in a recent report.

Against this backdrop, the brokerage has increased its fiscal year 2024 (FY24) loan growth estimate to 16 per cent. Those at Anand Rathi Research expect net interest margin (NIM) to hold above 4 per cent in FY23, and FY24, and estimate a 1.7 per cent return on assets (RoA) each for the two fiscal years. Besides, good operating performance, a pick-up in business growth, and the benign credit-cost cycle is likely to keep profitability intact, they said.

That said, despite a gradual pick-up in growth in Q1FY23, the underlying asset quality trends have some analysts worried.

Gross slippages (Rs 2,250 crore) during the June quarter were elevated at 3.9 per cent, over 70 per cent of which stemmed from the consumer financing portfolio on the back of slippages worth Rs 600 crore from the restructured book. Gross slippages in the March quarter were Rs 2,088 crore.

Total slippages in Q1FY23 were up 8 per cent quarter-on-quarter, largely on account of higher slippages from the restructured book at Rs 921 crore versus Rs 321 crore QoQ.

With this, the bank's gross NPA ratio weakened to 2.35 per cent in Q1FY23 vs 2.27 per cent in Q4FY22. NNPA, meanwhile, came in at 0.67 per cent in Q1FY23 vs 0.64 per cent QoQ.

Overall, 43 brokerages have 'buy' calls on the stock, four have ‘hold’, and one has 'sell' rating. One-year target prices range from Rs 444 to Rs 1,650 – up 35 per cent from its current market of Rs 1264, as per Bloomberg data.

As per technical charts, the stock is attempting to conquer its immediate resistance of Rs 1,265 – the higher end of the Bollinger Band on the daily chart. Once done, it may rally towards Rs 1,333, which is its monthly trendline resistance.