IndusInd Bank share drops 20% on poor Q2 show; analysts slash target price

IndusInd Bank share price news: IndusInd Bank saw an all-round miss in Q2 earnings and the weakest earnings growth in the sector, by any bank, so far

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IndusInd Bank share:price: A weak set of July-September quarter (Q2) results for financial year 2024-25 (FY25) triggered panic selling in IndusInd Bank shares on Friday. During the intraday trade, IndusINd Bank share price plunged 19.6 per cent to a low of Rs 1,027.8 per share on the BSE -- a level last seen in May 2023.

 

By comparison, the benchmark BSE Sensex index was down 627 points, or 0.78 per cent, at 79,438 levels at 11:40 AM.

 

Analysts blamed a cocktail of weak net interest margins, deterioration in asset quality, high credit costs, along with surging provisions for an all-round miss in Q2 earnings and the weakest earnings growth in the sector so far by any bank.

 

They have slashed their share price target on IndusInd Bank and believe the stock will remain under pressure in the near-term.

 

"IndusInd Bank reported a weak quarter on most fronts led by higher credit costs, NIM compression, and slower fee momentum. While we appreciate IndusInd Bank's proactive stance on creating contingent buffers, we believe slower growth and clouded asset quality outlook will impact return profile of the bank and is likely to keep stock multiples under pressure in the near-term," noted analysts at JM Financial.

 

The brokerage has cut its target price to Rs 1,380 per share, from Rs 1,900, valuing the stock at 1.4-time price-to-book value based on FY26 earnings estimates.  

 

On Thursday, IndusInd Bank saw a net profit decline of 39.2 per cent year-on-year (Y-o-Y) to Rs 1,325.45 crore in Q2 FY25 as the bank's provisions surged 87 per cent Y-o-Y to Rs 1,820 crore for the quarter.

 

Its net interest income (NII) increased by just 5 per cent Y-o-Y, but fell 1.1 per cent quarter-on-quarter (Q-o-Q) to Rs 5,347 crore. NIM contracted to 4.08 per cent from 4.29 per cent last year, and 4.25 per cent Q-o-Q.

 

On the lending front, IndusInd Bank's net advances were soft, growing barely 2.7 per cent Q-o-Q and 13.2 per cent Y-o-Y, with retail segment growing 0.2 per cent Q-o-Q/10.9 per cent Y-o-Y amid a slowdown in the microloans segment (down 11.7 per cent Q-o-Q/4.8 per cent Y-o-Y).

 

Deposits growth, meanwhile, was at around 3 per cent Q-o-Q and 15 per cent Y-o-Y. With this, current account-savings account (CASA) growth was muted at 5 per cent Y-o-Y and 1 per cent sequentially. IndusInd Bank's loan-to-deposit ratio (LDR), however, improved to 86.55 per cent from 87.3 per cent seen in Q1 FY25 and 87.7 per cent in Q2 FY24.

 

"IndusInd Bank's yields slumped 26 basis points (bps) Q-o-Q to 12.31 per cent in Q2 FY25, dragged by consumer banking yields (down 28bps Q-o-Q to 15.07 per cent), mainly due to inferior loan mix and adverse LDR. We estimate NIM to remain weak in the near-term due to rise in MFI slippages," pointed out analysts at ICICI Securities with a lower target price of f Rs 1,600 (vs Rs 1,900).

 

Asset quality hits

IndusInd Bank's slippages increased 17 per cent Q-o-Q to around Rs 1,800 crore amid a jump in retail slippages at Rs 1,680 crore. Net slippages, thus, increased to 1.3 per cent from 1.2 per cent Q-o-Q.

 

Gross non-performing asset (GNPA) saw an uptcik of 9bps Q-o-Q to 2.11 per cent, while NNPA ratio was up 4bps Q-o-Q to 0.64 per cent.

 

"As MFI stress is likely to be high even in Q3 and fee income is running slow for two quarters, we expect the stock to underperform even after the sharp price correction. We cut earnings per share (EPS) by 20 per cent for FY25 earnings estimates and by 15 per cent for FY26. We cut our share price target to Rs 1,290 from Rs 1,690 and downgraded the stock to 'Hold' from 'Buy'," said Nuvama Institutional Equities.

 

Among others, Kotak Institutional Equities has cut target price to Rs 1,650 from Rs 1,800; Emkay Global to Rs 1,650 from Rs 1,800; and Phillip Capital to Rs 1,560 (Rs 1,830 earlier).