Brokerages fret over lower tenure extension for IndusInd Bank CEO

Since his appointment in 2020, Sumant Kathpalia has been instrumental in spearheading the bank’s growth with marked improvement in key financial and business performance metrics

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Sumant Kathpalia’s reappointment as IndusInd Bank managing director and chief executive officer for two more years, instead of three as was ratified by the bank’s board, has left foreign brokerages a bit puzzled.

Since his appointment in 2020, Kathpalia has been instrumental in spearheading the bank’s growth with marked improvement in key financial and business performance metrics. The bank’s board had in September 2022 approved the re-appointment of Kathpalia with effect from March 24, 2023 up to March 23, 2026. After six months, the RBI’s nod has come for only two years, contrary to Street expectations.

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Following this, JPMorgan has downgraded the stock to a ‘neutral’ rating and cut its target to Rs 1,060 per share. “In the current environment of tightening liquidity, the reappointment for only two years could place the bank at a disadvantage,” the broking firm said.

Morgan Stanley, on its part, has given IndusInd Bank an ‘overweight’ rating and set a target of Rs 1,525 per share. Morgan Stanley analysts find it tough to ascertain the reason behind the lower tenure extension, as there have been instances of both lower as well as higher extension.

Citi, on the other hand, has maintained its ‘buy’ rating with a target of Rs 1,420 per share. “We will closely monitor the bank’s progress on its strategic initiatives towards delivering over 5 percent pre-provision operating profit and towards delivering over 2 percent RoA and over 17 percent RoE over FY24/25,” it said.

According to Jefferies, the lower extension may mean slight pullback on growth and defer re-rating. It has trimmed loan growth estimate by 100 basis points for FY24-25.

“The lower tenure extension may be a reflection on the need to improve on controls (MFI incidence), liabilities (retail mix), and underwriting (retail and less risky). We see this as reasonable time to demonstrate progress as the bank had already made moves on these counts,” it noted in a report.

Since valuation is attractive at 1.4x FY24 price-to-book ratio, it has a ‘buy’ rating on the stock with target price lowered to Rs 1,550 from Rs 1,600.?

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