Broker's call: IndusInd Bank (Buy)

| Updated on February 24, 2020 Published on February 25, 2020

India Nivesh

IndusInd Bank (Buy)

CMP: ₹1,170.55

Target: ₹1,500

Multiple issues weighing down on valuations: IndusInd Bank’s valuations have been under strain ever since it disclosed its exposure to IL&FS (₹3,000 crore) and have subsequently struggled to improve with a) attendant credit costs weighing down on profitability; b) further uncertainty with regard to its exposure to Vodafone-Idea, which the bank clarified recently in an exchange filing, was ₹3,400 crore (FB ₹900 crore, NFB ₹2,400 crore); and c) rising investor wariness on continued stress in its corporate book given the sustained slippages the bank has reported in corporate loan book between Q2FY19 to Q3FY20 (average ₹430 crore/quarter excluding large slippages in Q4FY19 and Q3FY20).

Our revised target price takes into account likely additional stress from vulnerable segments although we have not plugged the same into our estimates yet.

At 2.0x/11.1x FY21E ABV/EPS respectively, we believe IndusInd Bank’s risk-reward is attractive. With core RoAs (PPoP level) remaining robust (about 3.6 per cent, ₹13,000 crore), we expect the lender to be able to absorb asset quality shocks. Any relief from the government to stressed telecom exposure and recoveries from IL&FS exposure shall be an added near-term positive and could provide upward bias to our target price.

Published on February 25, 2020

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