IndusInd Bank Ltd. shares demonstrated resilience on Tuesday, recovering from an intraday low of Rs 889 after briefly falling below the Rs 900 mark. The rebound follows an optimistic outlook from global investment bank Jefferies, which reiterated its 'Buy' recommendation on the stock.
Jefferies, having engaged with IndusInd Bank's management, set a target price of Rs 1,250, implying a substantial 37% potential upside from current levels. The brokerage firm anticipates a significant rerating for the bank, driven by a turnaround in its operations over the next two to three years. Key factors supporting this positive forecast include an improved liability franchise, a projected increase in Return on Assets (RoA), and the stability of its top management team. Jefferies highlighted the stock's reasonable valuation at 1 times FY28 adjusted book value.
Strategic Initiatives for Growth
IndusInd Bank's management is confident in its ability to enhance its RoA from the current 0.6% to 1% by the end of FY27, with ambitions to reach 1.25-1.30% within the next two years. This improvement is expected to stem from optimized credit costs and enhanced Pre-Provision Operating Profit (PPoP), benefiting from better Net Interest Margins (NIMs), fees, and operational expenditure management.
The bank has implemented several strategic initiatives to achieve these targets:
- Branch Banking Reorientation: A restructured branch banking framework with consolidated teams.
- Corporate Salary Focus: Strengthening its corporate salary team.
- Deposit Growth: Concentrating on expanding current deposits through refreshed offerings in transaction banking, capital markets services, and cash & forex banking.
- Targeted Deposits: Actively pursuing deposit opportunities from its vehicle finance client base.
Additionally, IndusInd Bank successfully mobilized $3.5 billion in FCNR-B deposits, noting that its share of leveraged deposits (50%) is lower than that of its peers. This has enabled the bank to reduce rates on wholesale term deposits, which should support its top-line growth.
Addressing Potential Headwinds
Despite the positive outlook, Jefferies acknowledged certain potential risks. A proposed reduction in commissions on insurance products could impact the bank, as its commission pool from this segment stood at Rs 1,000 crore in FY26. The majority of these fees originate from new sales, including credit-protect products. Furthermore, the transition to Expected Credit Loss (ECL)-based provisioning could have an impact equivalent to 1.25% of loans or 100 basis points of Tier I Capital Adequacy Ratio (CAR).
For its Microfinance Institution (MFI) loans, the bank has proactively strengthened underwriting processes and implemented maker-checker controls on loan applications to mitigate fraud risks. It has also secured coverage under a credit guarantee scheme, which currently covers 75% of its MFI portfolio and is anticipated to extend to 100%.
Jefferies concluded, "We stay with BUY call and target price of Rs 1,250 based on 1.3 times September 2028 book value," underscoring their confidence in IndusInd Bank's strategic trajectory and valuation potential.