IndusInd Bank has faced significant challenges in recent times, resulting in a downward revision of its stock target price. Analysts have downgraded their outlook due to several key factors, including declining profits, weaker asset quality, and lower lending activity. In this article, we will explore the main reasons behind the pressure on IndusInd Bank’s share price and what investors can expect in the short term.
IndusInd Bank Target Price Downgrade
Nirmal Bang, a leading brokerage firm, has downgraded its rating on IndusInd Bank from ‘Buy’ to ‘Hold’. The target price has also been slashed from Rs 1,653 to Rs 1,443, reflecting the bank’s ongoing struggles. This downgrade follows a sharp drop in IndusInd Bank’s share price, which fell 15% to Rs 1,089 after the announcement of its Q2 results.
The significant reduction in the target price is due to the bank’s weaker-than-expected financial performance, coupled with concerns about asset quality and future earnings. Investors are advised to proceed with caution as the bank navigates through a challenging period.
Q2 Profit Slump and Share Price Reaction
IndusInd Bank reported a sharp 39% year-on-year (YoY) decline in net profit for the quarter ending September 2024, which triggered the recent sell-off. The bank’s net profit for Q2 came in at Rs 1,325 crore, well below the market’s expectations of Rs 2,138 crore. This disappointing performance has raised concerns about the bank’s ability to meet future profit targets.
As a result, the stock witnessed a steep drop of 15%, hitting Rs 1,089. Investors are now questioning whether they should buy, sell, or hold their positions in the stock. Given the uncertain outlook, many are opting to hold or reduce their exposure until there are clearer signs of recovery.
Mixed Financial Performance: NII Grows, But NIM Contracts
Despite the sharp decline in profit, IndusInd Bank’s net interest income (NII) saw a modest growth of 5% YoY, reaching Rs 5,347 crore in Q2. While this increase is a positive sign, it was overshadowed by a contraction in the bank’s net interest margin (NIM), which dropped to 4.08%. This represents a 21-basis-point decline from 4.29% in the same period last year and an 18-basis-point decrease on a quarter-on-quarter (QoQ) basis.
The shrinking NIM reflects tighter profitability as the bank faces challenges in maintaining its lending margins amid rising competition and slowing loan growth. This trend is likely to continue unless the bank can improve its asset quality and increase its lending activity.
Jefferies Cuts Target Price: Citing Weaker Asset Quality
Jefferies, another prominent brokerage, has also revised its outlook on IndusInd Bank, maintaining a ‘Buy’ rating but lowering the target price from Rs 1,750 to Rs 1,470. The revision is primarily due to weaker asset quality and the impact of contingent provisions, which have eroded the bank’s profitability.
Jefferies expects the pressure on IndusInd Bank’s financial performance to persist in the second half of FY25, with some moderation expected in FY26-27. The brokerage has also forecasted an earnings cut of 13-25% over the next few years, reflecting the challenges the bank is likely to face in the near term.
Asset Quality and Loan Growth Concerns
One of the key issues plaguing IndusInd Bank is its deteriorating asset quality. The bank’s loan growth has moderated, and slippages have increased, leading to higher credit costs. These factors have contributed to an overall decline in profitability.
Analysts have pointed out that despite accounting for one-time provisions, the bank’s Q2 profit fell short of consensus estimates. The bank’s performance in terms of loan growth and asset quality will be critical in determining its ability to recover in the coming quarters.
What Should Investors Do?
Given the current challenges, investors are faced with a difficult decision. While some analysts have maintained a ‘Buy’ rating, the majority have adopted a more cautious stance, downgrading the stock to ‘Hold’. The pressure on IndusInd Bank’s financial performance, coupled with the uncertain macroeconomic environment, suggests that the stock may continue to face headwinds in the short term.
For long-term investors, holding onto the stock may be a reasonable option, provided they are prepared to weather the volatility. However, those with a shorter investment horizon may want to consider reducing their exposure until there are clearer signs of a turnaround.
Conclusion: IndusInd Bank Faces Tough Short-Term Outlook
IndusInd Bank is currently navigating through a challenging period, with its stock price under pressure due to weaker-than-expected profits, declining NIM, and concerns over asset quality. While some analysts remain cautiously optimistic about the bank’s long-term prospects, the near-term outlook remains uncertain.
Investors should closely monitor the bank’s financial performance in the coming quarters, particularly its ability to improve asset quality and reignite loan growth. Until then, the stock is likely to remain under pressure, making it a more suitable option for those with a higher risk tolerance and a long-term investment horizon.
