IndusInd Bank witnessed a sharp 19% drop in its share price, hitting a 52-week low on concerns over escalating microfinance loan stress. The bank, part of the Hinduja Group, faced heightened pressure after releasing a disappointing Q2 earnings report, highlighting key issues such as rising provisions, moderate loan growth, and a concerning uptick in microfinance slippages.
Q2 Earnings Snapshot
For the quarter ending September 30, 2024, IndusInd Bank’s net profit plunged by 39% year-on-year to Rs 1,325 crore. This decline was driven by nearly doubling its loan loss provisions to Rs 1,820 crore, an 87% increase compared to the same period last year. While the net interest income rose modestly by 5% to Rs 5,347 crore, the bank’s net interest margin (NIM) declined to 4.08% from the previous 4.29%, indicating reduced profitability on its lending operations.
Analysts’ Concerns and Target Price Adjustments Following these results, multiple brokerage firms lowered their target prices for the bank’s stock. ICICI Securities revised its target to Rs 1,600, attributing the downgrade to slow growth in high-yielding segments like microfinance. Other firms like JM Financial and Nuvama expressed concerns over the asset quality in consumer lending sectors, adjusting their targets to Rs 1,380 and Rs 1,290, respectively.
Despite these downgrades, some analysts retain optimism. Motilal Oswal and Emkay have maintained a “Buy” rating, forecasting a gradual recovery and stable asset quality over the next few quarters.
What Lies Ahead for IndusInd Bank?
While the bank has been proactive in creating additional buffers to manage potential defaults, analysts remain cautious. The bank’s gross NPA ratio rose to 2.11% from last year’s 1.93%, with further risks projected in its microfinance loan segment. Industry experts caution that the stock could remain under pressure in the near term, particularly if loan delinquencies continue to rise.
In the coming quarters, analysts will closely monitor the bank’s strategy for addressing these challenges, particularly any recovery measures in the high-risk microfinance sector.
Source: This article is based on information from The Hindu Business Line, Fortune India, and Moneycontrol.
Key Highlights:
- IndusInd Bank shares dropped by nearly 19% due to rising microfinance loan defaults.
- The bank’s net profit fell by 39% year-on-year, mainly due to increased loan loss provisions.
- Multiple brokerages downgraded their target price, citing asset quality concerns in consumer loans.
- Analysts predict potential stabilization but caution about near-term stock pressure.
