IndusInd Bank - Well Placed On Growth, Net Interest Margin, Asset Quality Troika: ICICI Securities

ICICI Securities Report

We believe IndusInd Bank Ltd. is ripe for re-rating. The bank is well placed on current interest rate cycle and should have broadly stable net interest margin trajectory, unlike peers which are likely to see NIM compression.

The bank has relatively less reliance on unsecured personal / gold loans (no end use monitoring, current key concern of the regulator) and the growth is likely to be driven by niche domains. In our view, the bank is likely to report amongst the highest net interest income /pre-provision operating profit growth for FY24-26E, versus peers.

It is also one of the few banks in the coverage to see rising return on asset over FY23-26E versus moderating return on asset for the system.

We forecast FY25-26E RoA rising to ~1.9%, which is significantly higher than the last 10 years’ average of ~1.6%. Current valuations at ~1.7/1.4 times FY25/26E adjusted book is attractive versus mean one-year forward book multiple of ~1.7/2.5 times for 5/10 year’s average.

Maintain Buy with an unchanged target price of Rs 2,000. We acknowledge the change in operating business environment (post pandemic) and current tight funding environment.

Our target multiple of ~1.9 times FY26 ABV is similar to the projected RoA (FY25-26E) and thus does not embed any material growth component.

We maintain IndusInd Bank as one of our top banking ideas.

Key risks

Sharp rise in delinquencies impacting growth / profitability and lack of clean three-year term extension for the incumbent Managing Director and Chief Executive Officer (the current two-year term expires in March 2025).

Separately, the bank appears confident of not being impacted by promoter acquisition of stressed asset under NCLT.

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