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Bernstein calls Indusind Bank's 2Q25 results 'disappointing', lowers stock PT

Published 28-10-2024, 07:26 pm
INBK
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On Monday, Bernstein SocGen Group revised its price target for Indusind Bank Ltd (IIB:IN), lowering it to INR1,300 from the previous INR1,800. Despite the reduction, the firm maintained an Outperform rating for the bank's stock. This adjustment followed a significant drop in IndusInd Bank (NS:INBK)'s share price, which fell approximately 19% on Friday due to unsatisfactory second-quarter results for the fiscal year 2025.

The analyst from Bernstein SocGen Group noted that the current stock price reflects a near-doomsday scenario. However, earnings updates from other banks and non-banking financial companies (NBFCs) over the weekend suggest that the likelihood of such a dire outcome is low. The analyst sees a potential upside of about 25% for the bank's shares at the current level.

The disappointing quarterly results included a decline in the return on assets (RoA) to 1% and lower growth. Investors have raised concerns about stress in the microfinance institution (MFI) segment and an unexpected 11% quarter-over-quarter increase in the other retail segment, which includes personal loans, despite rising non-performing loans (NPLs) in that segment.

The analyst's commentary also highlighted the market's reaction to the results, indicating that the stock price already accounts for extreme scenarios. This includes an estimated 11% write-off of equity and a sustained 30-40 basis points impairment to RoAs.

For example, the current valuation could be justifying a near-term assumption of a 20% write-off on the MFI book and a 10% write-off for credit card and other unsecured loans, as well as a long-term impact of its sustainable RoA declining to approximately 1.3-1.4 times, factoring in a lower share from the MFI and other retail segments.

InvestingPro Insights

To complement the analysis of IndusInd Bank Ltd, let's examine some key metrics for First Internet Bancorp (NASDAQ:INBK), another player in the banking sector. According to InvestingPro data, INBK's market capitalization stands at $309.88 million, with a P/E ratio of 13.83, indicating a relatively modest valuation compared to some peers in the industry.

An InvestingPro Tip highlights that INBK has raised its dividend for 4 consecutive years, which may appeal to income-focused investors. However, it's worth noting that the current dividend yield is modest at 0.68%.

Despite recent challenges, INBK has shown strong revenue growth, with a 26.53% increase over the last twelve months as of Q3 2024. This growth trajectory is particularly impressive given the current economic environment and aligns with the broader industry trends discussed in the article about IndusInd Bank.

Another InvestingPro Tip suggests that INBK's stock is trading near its 52-week low, which could present a potential opportunity for value investors. This situation mirrors the significant drop in IndusInd Bank's share price mentioned in the article, although for different reasons.

It's important to note that InvestingPro offers 14 additional tips for INBK, providing a more comprehensive analysis for investors interested in the banking sector beyond the scope of this article.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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