IndusInd Bank share price was buzzing in trade on Saturday, February 1, during the special trading session for Budget 2025 presentation. IndusInd Bank share gained 3 per cent in the intraday trade to hit a high of Rs 1,022.9 per share on the BSE, a day after the lender reported its October-December (Q3) quarter results for FY25.
The stock was the top gainer on the Sensex index today, and the second top gainer on the Nifty index. At 9:50 AM, IndusInd Bank stock was up 2.6 per cent on the stock exchanges as against around 0.3 per cent rise in the Sensex, Nifty indices.
The rise in IndusInd Bank share price, meanwhile, came despite a sharp earnings cut by analysts post the lender's weak Q3 results.
Analysts at Nuvama Institutional Equities, for instance, have cut revenue estimates by 4.1 per cent for the current financial year (FY25) and 7.6 per cent for FY26. They have also reduced their pre-provision operating profit (PPoP) estimates for FY25 and FY26 by 6.9 per cent and 13.8 per cent, respectively, while slashing net profit estimates by 21.9 per cent and 27.4 per cent for the respective years.
Highlighting IndusInd Bank's weak Q3 results, Nuvama Equities said the bank reported a weak Q3FY25 with a miss on net interest income (NII) and core PPOP. Core PPOP decreased sharply by 11 per cent year-on-year (Y-o-Y) and 5 per cent quarter-on-quarter (Q-o-Q) to Rs 3,601 crore, with net interest margin (NIM) contracting by 15bps Q-o-Q to 3.93 per cent due to repricing of EBLR-based corporate loans and dip in microfinance (MFI) loans.
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Overall, IndusInd Bank's Q3 loans grew 12 per cent Y-o-Y and 3 per cent Q-o-Q with consumer loans rising 3 per cent Q-o-Q, corporate growing 2 per cent Q-o-Q and MFI holding flat. MFI disbursals grew 30 per cent Q-o-Q versus a decline for peers.
Deposits, on the other hand, decreased 1 per cent Q-o-Q because the bank shed LCR-unfriendly deposits. NII declined 1 per cent Y-o-Y and 2 per cent Q-o-Q to Rs 5,228 crore, missing consensus.
It reported a net profit of Rs 1,401.28 crore in Q3 FY25, down 39 per cent Y-o-Y.
On the asset quality front, IndusInd Bank's slippages from MFI segment surged 74 per cent Q-o-Q to 7.8 per cent from 4.6 per cent Q-o-Q. MFI segment's gross non-performing assets (GNPAs), including write-offs, shot up 19 per cent Q-o-Q versus the reported 10 per cent.
Further, there was a sharp rise in tractor and small commercial vehicles (CV) NPAs while NPLAs in cards also inched up. Corporate slippage was also high, rising from Rs 1.2 billion to Rs 2.8 billion driven by the slippage of a restructured real estate account.
Gross credit cost jumped to 2.11 per cent from 1.45 per cent Q-o-Q, but net credit cost was lower as the lender used Rs 200 crore of contingency provision.
"The 30+ DPD in MFI remained high at 4 per cent versus 4.1 per cent Q-o-Q, implying higher slippage even for Q4FY25. With growth, margin and NPA outlook uncertain, we maintain ‘HOLD’ rating on IndusInd Bank stock. We are cutting EPS by 22 per cent/27 per cent for FY25E/26E, and TP to Rs 1,115 from Rs 1,290," Nuvama Institutional Equities said.
On its part, the management stated that any measures in the Union Budget, to be tabled today, supporting rural as well as overall economic activity could aid growth in MFI and CV business. Given this, it has reiterated the guidance on maintaining loan-deposit ratio (LDR) between 88 per cent to 90 per cent.
The focus of the management, going ahead, will be on diversifying the MFI book. The aim is to moderate the share of MFI to 8-10 per cent of the overall loan book, down from the earlier range of 15 per cent, it said.
Further, the management believes growth in the JLG segment at an industry level is expected to be in the range of 10-15 per cent. However, this growth will primarily come from newer and unpenetrated geographies.
The bank is set to launch Bharat Vikas Banking in April 2025, focusing on the merchant acquiring business.
Given this, analysts at Emkay Global Financial Services have retained their 'Buy' rating on the stock, though with a reduced target price of Rs 1,400 from Rs 1,500, given the cheap valuations for a bank that is capable to deliver healthy RoAs, once MFI stress eases and thus offers better risk-reward.
"Also, IndusInd Bank given its higher fix rate asset book, will be better positioned to protect margins once rate cut cycle begins," it noted.
Nonetheless, the brokerage has cut their earnings estimates by 7-9 per cent and expect return on asset (RoA) around 1.2 per cent in FY25E, which is expected to gradually improve to 1.6 per cent by FY27E as growth, margin and LLP normalises.
The managing director's (MD's) term extension, rate cut, and MFI relief will be near-term monitorables, the brokerage added.
