IndusInd Bank Q3 results impress analysts. Should you buy or sell?

Analysts remain bullish on the counter, saying steady margins, improving retail deposit mix and strong loan growth were some of the key positives from Q3 results

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IndusInd Bank impressed the street with a healthy set of number for the December quarter and analysts remain bullish on the counter, counting steady margins, improving retail deposit mix and strong loan growth as some of the key positives.

In the past year, the stock has jumped more than 31 percent, outperforming Bank Nifty index which is up 8 percent. The stock hit a 52-week high of Rs 1,694 on January 15.

The bank’s net profit grew 17 percent on-year to Rs 2,301 crore, aided by healthy net interest income (NII) growth of 18 percent and lower provisions, the private lender said on January 18. At a time when banking sector is grappling with higher cost of funds, its net interest margin (NIM) saw a modest expansion of two basis points (bps) YoY to 4.29 percent in the December quarter.

Analysts at Jefferies shared a “buy” call for IndusInd, with a target price of Rs 2,070, saying the lender’s NII growth was among the best across coverage.

“IndusInd’s profit met estimates but they used Rs 200 crore of contingent buffers. We see 20 percent profit compounded annual growth rate (CAGR) in FY24-26, with return of equity (RoE) of 16 percent in FY25,” they wrote in their result review.

HSBC, too, shared a “buy” call, with a target price of Rs 2,040 apiece on the back of in-line Q3 operating performance, but remain wary of higher slippages. “We forecast CAGR of 23 percent for operating profit and 21 percent earnings per share (EPS) over FY24-26,” they said.

ALSO READ: IndusInd Bank Q3 Results: Net profit jumps 17% to Rs 2,301 crore, asset quality stays healthy

Higher slippages overhang on IndusInd Bank

The rise in fresh slippages, or bad loans, however, remained a key concern during the quarter, analysts at Morgan Stanley said, trimming EPS by 0.5 percent for FY24 and a percent for FY25.

The brokerage firm, however, shared an “overweight” call with a target price of Rs 1,850 per share.

IndusInd Bank’s fresh slippages rose 20.5 percent on a sequential basis to Rs 1,700 crore in the December quarter due to a elevated slippages in corporate and vehicle finance books. However, the management guided that they will normalise to Rs 1,200 crore going ahead.

Gross non-performing asset (GNPA) and net NPA ratios were stable at 1.9 percent and 0.5 percent, respectively, due to asset reconstruction company (ARC) sale of Rs 3,100 crore.

ALSO READ: Options Trade | An earning-based non-directional options strategy in IndusInd Bank

Strong retail deposit growth a key strength

On the business front, analysts at Macquarie said 24 percent on-year growth in retail book was encouraging during the quarter.

“The retail book growth was driven by vehicle book growth. As per liquidity coverage ratio classification mix, retail deposit improved to 45 percent YoY,” the brokerage firm said, sharing an “outperform call” with a target price of Rs 1,900 a share.

The lender’s loan growth was up by 20 percent YoY, while deposits grew by 13 percent YoY. The management expects loan growth to be in the range of 18-23 percent, with the retail loan mix at 55-60 percent.

“We estimate 21 percent earnings CAGR over FY24-26, leading to RoE of 16.2 percent in FY25,” analysts at Motilal Oswal Financial Services said, reiterating a “buy” rating for IndusInd Bank with a target price of Rs 1,900.

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