CLSA lowers target price for IndusInd Bank to Rs 900 but sees 34% upside

Near term fraught with uncertainty but if history is a guide fundamentals could drive a recovery, says the brokerage

Global brokerage CLSA has lowered its target price for IndusInd Bank from ₹1,200 to ₹900 while maintaining an outperform rating on the stock after the private lender disclosed a net worth hit of ₹1,500 crore due to an accounting gap. The revised price target still implies an upside of 34 per cent from current levels.

 

Shares of IndusInd Bank last closed at ₹672, down 1.84 per cent from previous close of ₹685.

 

“We cut our estimates 9 per cent-25 per cent (for the one-off accounting hit and lower growth) and cut our target price from ₹1,300 to ₹900 but maintain our outperform rating,” CLSA said in a note, drawing comparisons with RBL Bank, and Yes Bank.

 

“When the RBI gave a one-year extension to the MD of RBL Bank and later appointed a PSU banker, the stock crashed 60 per cent. The Street feared there would be skeletons in the closet. However, over the ensuing quarters, nothing emerged and the stock recovered its losses. A similar but temporary phenomenon happened with Yes Bank, with a forced-CEO exit followed by a nil GNPL divergence report. IIB’s stock price trajectory should be no different in our view,” wrote CLSA analysts Piran Engineer, Shreya Shivani, and Roshny Munshi.

 

The note said that the recent accounting discrepancy was not reported either by the bank’s auditors or the RBI over the past five to seven years.

 

“However, the RBI cut the managing director’s tenure to one year. The reason may not necessarily be asset quality, but there could be other factors. The RBI’s one-year extension to IIB’s MD is similar to what it did for RBL Bank in 2021. However, in Yes Bank’s case, the RBI abruptly terminated the MD’s tenure within 3-4 months of its announcement. In both cases, the stocks recovered after some time (in Yes’ case, it was a temporary recovery),” they wrote.

 

CLSA believes shares of IndusInd may remain volatile in the near term but will recover if the lender’s fundamentals remain strong.

 

“Over the next 2-3 quarters, there will be lingering uncertainty over more skeletons in the closet and management continuity. If a PSU banker is appointed, there would be even more negative sentiment for the stock. Additionally, the potential invoking of the promoter’s stock pledge by its lenders would add to the uncertainty. But, over time, we believe its fundamentals will take over. If IIB delivers numbers broadly in line with expectations over the next 4-6 quarters, we believe concerns will subside,” the brokerage said.

 

Key positive drivers identified by CLSA include a recovery in microfinance, respite for margins from better banking system liquidity, and rate cuts.

 

It also said that any stake purchase by the promoter Ashok Hinduja “will definitely boost investor confidence.”

 

Shares of IndusInd have tumbled 60 per cent over the past year.