Broker's call: IndusInd Bank (Buy)

| Updated on February 28, 2020

Motilal Oswal Securities

IndusInd Bank (Buy)

CMP: ₹1,104

Target: ₹1,500

 RBI has approved the appointment of Sumant Kathpalia as MD & CEO of the bank for a period of three years, effective March 24, after Sobti’s term ends on March 23.

 IndusInd Bank’s stock price has corrected steeply over the recent period owing to concerns about its asset quality, CEO succession and adverse macro developments (Supreme Court’s ruling on telecom adjusted gross revenue — AGR ).

The Reserve Bank of India’s approval thus addresses one of the major overhang on the stock performance prompting us to assess the investment case as IndusInd Bank navigates through residual asset quality challenges.

 Over past two quarters bulk of corporate slippages came in from the BB & below pool the size of which has declined to 3.8 per cent (7.9 per cent in 1QFY20) while the watch-list has declined to 0.47 per cent of loans. This pool is likely to drive elevated slippages over the near term as the bank recognizes the residual stress.

 Our scenario analysis suggests that the potential slippages could impact FY21 ABV in the range of 7 per cent-10 per cent, which we believe is manageable given IndusInd Bank’s strong earnings profile and capital ratios.

 We revise our growth, provisioning assumptions and lower our FY21/22 estimates by 12 per cent/9 per cent respectively. We turn constructive on the stock given undemanding valuations & maintain ‘Buy’ with a target price of ₹1,500 (2.3x September 21E ABV).

Published on February 29, 2020

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