Sharekhan has maintained its "Buy" rating on IndusInd Bank (IIB) with an unchanged price target of Rs. 1,750. The brokerage acknowledges near-term headwinds related to elevated slippages in the credit card and microfinance segments, but expects these to normalize by FY25, driven by recoveries in the second half of the fiscal year. Sharekhan remains confident in IIB's ability to deliver sustained earnings growth and maintain a stable return on assets (RoA), underpinned by healthy loan growth and stable net interest margins (NIMs).
Key takeaways from the report:
- Elevated slippages in credit card and microfinance portfolios expected to normalize by FY25.
- Full-year credit cost guidance maintained at 110-130 bps despite near-term pressures.
- Loan growth expected to remain healthy at above 15% y-o-y, with a medium-term target of 18-22% y-o-y.
- Stable RoA expected, driven by loan growth and stable NIMs, contrasting with potential declines for peers.
- Valuation at 1.6x/1.4x FY25E/FY26E book value estimates deemed attractive, considering the growth outlook.
Sharekhan highlights that although asset quality deteriorated in Q1FY25 due to stress in the unsecured segment, the bank had proactively implemented corrective measures to mitigate risks. The brokerage expects slippages to revert to normalized levels in H2FY25, supported by recoveries. Despite higher credit costs in the near term, Sharekhan expects IIB's credit cost normalization to be slower than peers, as its current credit costs are already relatively high.
The report emphasizes IIB's focus on diversification and granular growth, coupled with early risk assessment and corrective measures. This approach is expected to contribute to the bank's ability to sustain better asset quality compared to its peers. The bank is also focused on strengthening its liability franchise and delivering sustained healthy growth.
While the report acknowledges the near-term challenges related to asset quality, it underscores the bank's robust capital base, strong retail deposit franchise, and its ability to deliver healthy loan growth in a challenging environment. Sharekhan believes these factors position IIB favorably to capture growth opportunities.
Looking ahead, Sharekhan anticipates that IIB will deliver stable RoA, driven by loan growth and stable NIMs, while some peers may experience declines. The brokerage expects slower upward credit cost normalization than peers, due to IIB's relatively higher starting point.
Sharekhan's valuation is based on a price-to-book (P/B) multiple. The current valuation of 1.6x/1.4x FY25E/FY26E book value estimates is deemed attractive given the bank's growth outlook and the expectation of stable RoA.
Potential risks highlighted in the report include:
- Economic slowdown impacting loan growth.
- Higher-than-anticipated credit costs.
- Slower growth in retail deposits.
Despite these risks, Sharekhan believes the bank's strengths outweigh the challenges, justifying the "Buy" rating.
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