IndusInd Bank Q1 Results Review: Microfinance Book Poses Near-Term Concern, Say Analysts

IndusInd Bank Ltd.'s asset quality of credit cards portfolio warrants a close watch, while microfinance portfolio also witnessed some stress and posed a near-term concern, according to brokerages.

The lender's consolidated net profit rose 2% year-on-year to Rs 2,171 crore in the quarter ended June, missing a consensus estimate of Rs 2,358.6 crore by analysts polled by Bloomberg.

Asset quality worsened, with the gross non-performing-asset ratio expanding 10 basis points sequentially to 2.02%. The Net NPA ratio widened 3 bps quarter-on-quarter. The bank had fresh NPA additions of Rs 1,536 crore in comparison to Rs 1,428 crore in the March quarter.

The chief executive officer pointed to rising stress in cards in 30 and 60 days past due. The microfinance institutions' over-leverage was seen in Odisha, eastern Uttar Pradesh and parts of Jharkhand, Nuvama Institutional Equities said in a note dated July 27.

"While MF and card businesses may continue to report some stress in the near term, the overall slippages are likely to remain in control and will help maintain broadly stable asset quality," Motilal Oswal Financial Services Ltd. said.

Here's What Brokerages Say

Nuvama

• Maintains 'buy' rating with a target price of Rs 1,404 apiece.

• Subdued loan growth at 15.5% YoY, with lower disbursals in commercial vehicles and MFI due to elections and heatwave.

• The bank also took a conscious call of slowdown in personal loans/CC.

• The NII growth was softer than asset growth as most of CV and MFI disbursals happened in June, where the mix was in favour of secured loans.

• Yield on investment rose sequentially with investment in better yielding AAA bonds of state banks.

• Card fees were lower due to fall in acquisition, elimination of interchange on rental fees and overlimit fees.

Emkay Global

• Maintains 'buy' with a target price of Rs 1,900 apiece.

• Moderate credit growth at 15.5% YoY mainly due to seasonal effect and conscious slowdown in select retail segments.

• CASA slipped to 37%, leading to a rise in cost of deposits by 4 bps.

• Slight increase in cost of funds due to uptick in cost of deposits and a special deposit scheme launched around the Cricket World Cup, partly offset by slight moderation in high-cost borrowings.

• Fresh slippages were higher at Rs 1,540 crore due to stress in the retail book, including cards and MFI.

• Key risks to the bank include slower-than-expected credit growth, asset-quality deterioration and attrition of key management personnel.

• Slashes earnings estimates by 7% for FY25–27.

Motilal Oswal

• Maintains 'buy' with a target price of Rs 1,700 apiece.

• Loan book grew 15% YoY and this was led by corporate book.

• Deposits grew 15% YoY and 4% sequentially, which was led by term deposits.

• Bank did not utilise any contingent provisions and held a contingency buffer worth Rs 1,000 crore as of Q1.

• Estimates return on assets of 1.83% after slashing estimates by 7.7% by FY26.

• Estimates return on equity of 15.4% after slashing estimates by 8% by FY26.

Nirmal Bang

• Maintains 'buy' with a target price of Rs 1,704 apiece.

• Q1 results below estimates across parameters.

• Reported NIM stable at 4.25% as increase in yields on assets helped bank offset the impact of increase in cost of funds.

• Diamond segment grew sequentially in Q1 after witnessing contraction for a few quarters due to weak global demand.

IndusInd's stock rose as much as 2.31% in early trade to Rs 1,436 apiece on the NSE. It was trading 1.78% higher at Rs 1,428.9 per share, compared to a 0.3% advance in the benchmark at 9:38 a.m.

The share price has risen 0.82% in the last 12 months but declined 11.5% on a year-to-date basis. The total traded volume so far in the day stood at 2.9 times its 30-day average. The relative strength index was at 47.

Forty-nine out of the 49 analysts tracking the bank have a 'buy' rating on the stock, five recommend 'hold' and one suggests a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 23%.