CLSA, BofA-ML, UBS, Morgan Stanley see up to 25% upside in IndusInd Bank post Q2 results

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NEW DELHI: Top four global investment banks maintain their rating on IndusInd Bank following Q2 results, but raised their respective target prices to Rs 1,525, which translates into an upside of 24.86 per cent from Monday’s closing price of Rs 1,221.55.

Private lender IndusInd Bank on Wednesday reported a 25.75 per cent year-on-year (YoY) surge in net profit to Rs 704.26 crores for the quarter ended September 30.

The new generation bank had reported a net profit of Rs 560 crore in the corresponding quarter of last year. An ET Now poll of analysts had anticipated a net profit of Rs 705 crore.

IndusInd Bank also achieved the aspirational milestone of 4 per cent net interest margin (NIM), a measure of profitability. Gross non-performing assets (NPAs) for the quarter stood at 0.9 per cent in Q2FY17 against 0.91 per cent in the Q1FY17. On a net basis, NPAs edged 0.37 per cent lower in September quarter from 0.38 per cent in June quarter.

Global brokerage firms, in separate notes to their clients, have tweaked their 12-month target prices for IndusInd Bank post-September quarter results:

CLSA: BUY| Target price at Rs 1,500
CLSA has maintained Buy rating on IndusInd Bank post Q2 results, but has raised its 12-month target price to Rs 1,500 from Rs 1,330. IndusInd Bank is leveraging strengthening of Casa, MCLR regime to gain market share in loans, said the note.

Larger corporate loans will not only aid growth but can also de-risk loan mix, said the brokerage note. It sees fee growth of 23 per cent which lagged loan growth, but asset quality remains strong.

The global investment bank sees 26 per cent CAGR in profit over FY16-19CL aided by a healthy rise in topline, and stable credit costs.

BofA-ML: BUY| Target at Rs 1,415
BofA-ML has maintained a Buy rating on IndusInd Bank post Q2 results with a 12-month target price of Rs 1,415. The margin uptick was led by rising Casa and the asset quality also remains manageable, said the BofA-Ml note.

The fee growth was a tad weak in 2Q at 23 per cent YoY as forex income remain muted due to the stable rupee. The earnings per share (EPS) growth is estimated at 24/27% for FY17/18.

BofA-ML believes that IndusInd Bank has scope for higher EPS in a falling rate environment due to a higher share of the fixed rate loan book.

Morgan Stanley: Overweight| Target Rs 1,300
Morgan Stanley has maintained an overweight rating on IndusInd Bank post Q2 results but raised its 12-month target price to Rs 1,525 from Rs 1,300.

Strong earnings growth was helped by accelerating net interest income (NII), stable fee income and strong asset quality. The global investment bank expects strong earnings growth to sustain given well-diversified portfolio.

Continued investments in new products and gradually improvements in macros are a couple of factors which are likely to help sustain growth for the bank, said the Morgan Stanley note. The stock is a preferred pick given strong balance sheet, high profitability, and diversified loan mix.

UBS: Neutral: Target at Rs 1,300
UBS has maintained a neutral rating on IndusInd Bank post Q2 results with a 12-month target price of Rs 1,300. Net interest margins (NIMs) improved further to 4 per cent while asset quality remained stable in the September quarter which was a key positive.

The global investment bank expects the loan growth to remain higher than the industry at 25 per cent CAGR over FY16-19E. It also expects the growth in PAT to moderate to sub 25 per cent in FY18-19E on slowing fee income.

While earnings growth is higher than industry, UBS believes that this is largely priced in.