IndusInd Bank Ltd. share price target

Strategic and Operational Headwinds in Focus

IndusInd Bank reported discrepancies in its derivative portfolio pertaining to transactions done over the past 7-8 years. During the internal review of the trade book in derivative portfolio in October 2024, the bank found some discrepancies.

Discrepancy in derivative portfolio account to adversely impact net worth by 2.35%, indicates weak internal controls

IndusInd Bank (IIB) has communicated a preliminary one-time hit of ~2.35% of net-worth on its derivative portfolio. We peg the pre-tax hit at ~INR 20bn–21bn.

IndusInd Bank (IIB) disclosed a derivative accounting discrepancy, impacting 2.35% (~ INR 15.0-16.0 Bn) of its net worth as of December 31, 2024, arising from internal hedging trades linked to foreign currency borrowings and deposits.

The RBI has approved the reappointment of Mr. Sumant Kathpalia as MD & CEO of the bank for a one-year term, effective 24th Mar’25, following the conclusion of his current term.

As opposed to the three-year term requested by IndusInd Bank’s (IIB) board for its incumbent MD & CEO, Mr Sumant Kathpalia, RBI has approved a term renewal for only one year.

In Q3FY25, Net Interest Income (NII) decreased by 1.3% YoY (-2.2% QoQ) to INR 52,281 Mn. The NII was lower by 3.6%. Pre-Provision Operating Profits (PPOP) declined by 10.9% YoY (flat QoQ) in Q3FY25 to INR 36,007 Mn. The PPOP was a 2.6% miss compared to our estimates. The net profit for Q3FY25 stood at INR 14,023 Mn, a decline of 39.1% YoY (+5.3% QoQ).

IndusInd Bank (IIB) reported weak performance in Q3FY2025 across key metrics on expected lines. Net interest income (NII) at Rs. 5,228 crore (below estimates led by lower NIM and slower credit growth) was down 1% y-o-y/2% q-o-q. NIM fell by 15 bps q-o-q to 3.93%, given lower growth in the unsecured book, repricing of the corporate book, higher slippages, and increased cost of funds (9 bps q-o-q).

Subdued quarter with moderate growth in advances and deposits, MFI book under stress

IndusInd Bank (IIB)’s PAT declined 39% YoY/rose 5% QoQ to ~INR14b (in line), as NII and NIM were broadly in line, while provisions continued to remain high.

IndusInd Bank (IIB) reported a sharp 42% earnings miss in 2Q with PAT/RoA at Rs13.3bn/1%, mainly due to slower credit growth (13% YoY), lower fees and higher LLP.

In Q2FY25, Net Interest Income (NII) grew by 5.3% YoY (-1.1% QoQ) to INR 53,473 Mn. Pre-Provision Operating Profits (PPOP) declined by 7.9% YoY (-8.9% QoQ) in Q2FY25 to INR 35,998 Mn.

IndusInd Bank (IIB)’s PAT declined 40% YoY/ 39% QoQ at ~INR13.3b (17% miss adjusted for contingent provision of INR5.25b).

We reiterate a Buy on IndusInd Bank (IIB) with an unchanged PT of Rs. 1,750. Near-term business
outlook remains comfortable except for the elevated slippages in the credit card and microfinance
portfolios that would normalise by FY25.

In Q1FY25, Net Interest Income (NII) grew by 11.1% YoY (+0.6% QoQ) to INR 54,076 Mn. The NII was lower by 2.2%. The Net Interest Margins (NIMs) were 4.3% for Q1FY25, a decline of 4 bps YoY/ 1 bps QoQ.