Target: ₹1,500
CMP: ₹983.70
Our recent interaction with the management of IndusInd Bank (IIB) suggests that MFI stress is likely to be recognised by Mar’25.
Given that MFI GNPA was 6.5 per cent, and 30-90 DPD was 4 per cent in Q2-FY25, provisions of ₹525 crore may not be adequate to cover for MFI stress. Hence, we increase provisions in FY25/26E by 28/8bps and trim core PAT by 17/13 per cent.
Focus is on diversification in vehicle and MFI, which together contribute about 35 per cent to loans. Aim is to bring down MFI exposure by expanding in merchant and MSME/home improvement loans. Ex-MFI loan exposure is likely to see stable credit costs.
IIB has been more prudent since its customer-level indebtedness has been below industry average. Over the next 2 quarters, 80-90 per cent of the loan book is likely to be replaced and most of the stress would be provided for.
While the bank may face near-term headwinds, medium-term story is intact as it is slated to deliver core RoA of 1.4/1.5 per cent in FY26/27E. A positive trigger could be RBI extending the MD & CEO’s term by 3 years (from Mar’25).
We roll forward to Mar’27 ABV, but cut multiple to 1.4x from 1.6x and trim TP to ₹1,500 from ₹1,600. Retain Buy.
