IndusInd Bank Ltd. saw its shares decline by 6% in Thursday's trading session, hitting a low of Rs 1,002.50 on the BSE. This fall occurred despite the bank reporting a first-quarter net profit that surpassed Street estimates, largely attributed to one-off gains.
NIM Decline and Loan Mix Impact Share Performance
The primary reason for the stock's downturn, according to analysts, was a sequential decline in the bank's core net interest margin (NIM) by 4 basis points. When adjusted for a one-time income tax refund, the normalised NIM reportedly fell by 3.35% quarter-on-quarter in the June quarter. This was primarily due to an adverse loan mix, leading to a 3% miss on net interest income (NII) expectations.
Management guidance also indicated further pressure on NIMs in Q2 FY27, with a recovery anticipated only in the second half of FY27. This outlook, combined with the stock's recent rally, has led several brokerage firms to suggest that immediate upside for IndusInd Bank shares appears capped.
Brokerage Outlooks and Valuations
Equirus Securities described Q1 as a mixed quarter for IndusInd Bank, noting that improvements in asset quality and business growth were offset by the NIM contraction. They highlighted that wholesale loans drove growth, likely keeping September quarter NIM under pressure. While Equirus believes the bank is nearing the end of its clean-up cycle, they suggested that current valuations of 1.1 times FY28 ABV (Adjusted Book Value) largely reflect the expected 1% exit Return on Asset (RoA) for Q4 FY27. Equirus set a target price of Rs 1,055.
JM Financial maintained an 'ADD' rating, revising their target to Rs 1,130 (from Rs 925), valuing the bank at 1.2x FY28E P/BV. They acknowledged that much of the recovery is already priced in following the stock's 16% rise over the last month.
Ashika Stock Broking expects a gradual recovery for IndusInd Bank, citing ongoing momentum rebuilding in its Retail and SME segments and continued portfolio recalibration. Their upgraded target multiple implies a target price of Rs 1,082, suggesting limited upside.
MOFSL observed that business momentum picked up sequentially, driven by robust growth in the corporate segment, though retail book growth remained muted. Retail deposits fueled overall deposit growth, increasing their share to 49.5% of total deposits. While slippages generally reduced, some segments like Vehicle Finance (VF) and Microfinance Institutions (MFI) saw an uptick due to seasonality. MOFSL maintained a 'Neutral' rating with a target of Rs 1,125, projecting the bank's loan growth to track industry averages in FY27 before potentially outpacing it in FY28.
Nuvama Institutional Equities offered a more optimistic view, noting that credit growth has turned positive sequentially. Better NII and lower operating expenses led to a strong 37% beat on profit. Nuvama anticipates further improvement in asset quality, especially in MFI stress, which, combined with better credit growth, should position IndusInd Bank to achieve a 1% exit RoA in FY27E. They retained a 'Buy' rating, raising their target to Rs 1,250 per share (from Rs 1,125), based on 1.5 times June-28E ABV.