IndusInd Bank Ltd.'s rating was upgraded to 'buy' from 'neutral' by Nomura as it noted efforts by the lender to improve its performance after some turbulent months. The research firm also raised the target price on the stock from Rs 700 to Rs 1,050.
"The commitment from the board to improve governance, the ongoing search for a new leadership and the clear intent to 'start FY26F on a clean slate' are crucial positive signs," the brokerage stated in its report.
The past few months have been turbulent for IndusInd Bank, owing to governance concerns and accounting lapses, it noted. However, the bank has executed a significant clean-up of its books and has taken one-time provisions to address legacy issues, added Nomura.
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It compared IndusInd Bank's case with the likes of RBL Bank Ltd. (which went through a leadership change in 2021), and Yes Bank Ltd. (which went through a leadership change in 2018), and said that while leadership exits for the latter two banks were triggered mainly on account of market concerns over asset quality, the stock performance became muted for a short term, but revived over medium term as fundamentals improved.
Highlighting other factors that would pave the way for IndusInd Bank's rebound, such as the bank's healthy capital and liquidity position, Nomura stated, "IIB's capital and liquidity position remain healthy with Common Equity Tier-1or CET-1 at 15.1% and Liquidity Coverage Ratio or LCR at 118%."
The bank's strong business model for retail is also one of the factors that will ramp up its improvement of profitability over the medium term, according to the brokerage.
The research firm has hiked earnings per share estimates for IndusInd Bank for FY27-28 by 14-16% and said it will be steered by higher net interest income and lower credit costs.
Nomura further expects IIB's return on assets performance to improve after having addressed past discrepancy issues, "IIB has taken a one-time hit of Rs 5,300 crore to address issues related to past discrepancies. Now with a new leadership, which is expected to be announced soon, we expect the bank to focus on steadying the ship over FY26F," the brokerage remarked.
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