At 0.8 times book value, IndusInd Bank stock valued as 'cheap': Bernstein

Sets target price of Rs 1,000, valuing the lender at 1x FY26 estimated book value; highlights key risks

IndusInd Bank's shares have experienced a significant decline of over 30 per cent this month, with the stock currently trading at just 0.8 times its book value. According to Bernstein, this represents a ‘cheap valuation’.

 

The brokerage firm has revised its target price downward from Rs 1,300 to Rs 1,000, which still implies a 47 per cent upside potential from current levels. Bernstein has valued IndusInd Bank at 1x its estimated book value for FY26.

 

Bernstein has identified key risks that investors should consider before entering the market at these levels.

 

The note, led by analysts including Pranav Gundlapalle, has highlighted that the promoter group holds 15 per cent of the bank's shares, with 50 per cent of these shares pledged. Additionally, the ongoing mergers and acquisitions (M&A) transaction pursued by the promoter group adds complexity to the situation. However, the limited increase in pledged shares, despite the sharp drop in stock price, somewhat alleviates these concerns, the brokerage has said.

 

 

Other significant concerns raised by Bernstein include management credibility and the potential for deposit outflows. The Bernstein note stated, “Asset quality issues, accounting problems, and the sell-down of management stakes prior to the bank’s troubles—a sharp decline in the chief executive officer and deputy chief executive officer’s stock ownership from June 2023 to June 2024—have eroded confidence in the management, making the appointment of new leadership an urgent necessity.”

 

Furthermore, the bank’s high reliance on wholesale deposits poses a risk of significant deposit outflows, driven by fears of deeper accounting issues. While the Reserve Bank of India’s (RBI’s) statement may help address some of these concerns, it also raises the risk of the bank falling into a vicious cycle, similar to the issue with pledged stocks, the brokerage has highlighted.

 

In conclusion, Bernstein notes that while the stock is currently undervalued, a re-rating will require a quarter of stable performance metrics—specifically, no sharp deposit outflows and no further accounting surprises. Most importantly, the appointment of a chief executive officer with a normal three-year tenure is crucial for the bank’s recovery, it added.