Despite a largely stable December quarter, investors booked profit in shares of IndusInd Bank (IIB) as an increase in slippages took them by surprise.

Analysts, on their part, believe investors may, now, wait for actual delivery on slippage decline, potentially limiting near-term upside.

“The management has indicated that corporate slippages (from legacy stressed book) have ended and inch up in consumer finance slippages was more one-off, and should meaningfully improve Q4FY24 onwards.

 

“Investors may await actual delivery on slippage decline, potentially limiting near-term upside,” said analysts at JM Financial.

Shares of IIB declined 3.9 per cent to Rs 1,550 apiece on the BSE in Friday’s intraday trade before closing 3.2 per cent down at Rs 1,561.

By comparison, the benchmark BSE Sensex settled 0.70 per cent higher, and the BSE Bankex gained 0.06 per cent.

During the October-December quarter of the current financial year (Q3FY24), IndusInd’s fresh slippages rose 20.5 per cent quarter-on-quarter (Q-o-Q) to Rs 1,770 crore, primarily driven by a rise in slippages in the corporate book and elevated slippages from the Vehicle Finance book.

Segment wise, Corporate slippages were at Rs 312 crore (Rs 140 crore pertaining to one large account), Consumer at Rs 1,450 crore (of which Vehicle Finance stood at Rs 600 crore, SME/BB at Rs 80 crore, LAP account at Rs 40 crore, Agri had extra slippages of Rs 25 crore, while Merchant acquiring business had Rs 30 crore of extra slippages).

That apart, IIB continued to run down the contingency provision buffer in Q3, given the release from Telco exposure, which now stands at Rs 1,300 crore/0.4 per cent of loans.

While the bank’s gross and net non-performing assets (GNPA/NNPA) ratios remained unchanged at 1.9 per cent/0.6 per cent of loans, driven by loan growth, analysts at HDFC Securities believe the lender faces structural liability-side challenges in sustaining its pace of growth.

Total loans grew 3.7 per cent Q-o-Q (up 20 per cent Y-o-Y), led mainly by the Consumer Finance segment (up 4.7 per cent Q-o-Q). Utility vehicle/credit card segments clocked growth of 11.4 per cent/8.2 per cent Q-o-Q, and the Microfinance business grew 4.1 per cent Q-o-Q.

Deposits, on the other hand, grew 13.4 per cent Y-o-Y (up 2.6 per cent Q-o-Q), with the CASA mix moderating 92bp Q-o-Q to 38.5 per cent and the Retail deposit mix as per liquidity coverage ratio (LCR) increasing slightly to 45 per cent.

“The decline in CASA showcases systemwide pressure on low-cost deposits. Credit costs (119bps annualised) continued to trend higher on the back of elevated gross slippages.

“We expect medium-term cost ratios to stay elevated as the bank frontloads its investments in digital build-out, capacity building, and distribution,” said HDFC Securities.

The brokerage, thus, has maintained ‘Reduce’ rating on the stock and has cut FY24 and FY25 earnings estimates by up to 3 per cent.

Overall, IndusInd Bank reported 17 per cent Y-o-Y rise in net profit at Rs 2,298 crore.

Net interest income (NII) grew 18 per cent Y-o-Y to Rs 5,296 crore, while non-interest income grew 15 per cent Y-o-Y.

Net interest margin (NIM) was flat Q-o-Q at 4.3 per cent.

Credit costs were at 1.2 per cent, return on assets (RoA) was at 1.9 per cent, and return on equity (RoE) was at 15 per cent.

“Though we broadly maintain estimates and see the near-term business environment to be quite favorable on the back of peaking of cost of deposits, and the bank’s decision to shift to high-yielding retail loans, any meaningful outperformance appears unlikely as valuations are capped by relative valuations of peers,” noted Kotak Institutional Equities.

Price targets raised

Nonetheless, most brokerages have raised their target prices on IndusInd Bank carries reasonable contingent provision (0.4 per cent of loans) as well as capital buffers (CET 1 at 16.1 per cent).

Kotak Institutional Equities has raised target price to Rs 1,800 (from Rs 1,600); HDFC Securities to Rs 1,380 (from Rs 1,280); JM Financial to Rs 1,900 (from Rs 1,675); Motilal Oswal to Rs 1,900.

Photograph: Reuters



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