Outlook Business Desk
Global brokerage CLSA has reduced IndusInd Bank's share price target from Rs 1,300 to Rs 900 due to an accounting discrepancy and leadership uncertainty.
IndusInd Bank's share price target was slashed following a turbulent week for the lender. Its MD and CEO received only a one-year extension from the RBI, instead of the usual three years. Soon after, the bank revealed an accounting discrepancy reducing its net worth by Rs 1,500 crore. These events have raised investor concerns about possible hidden risks.
IndusInd Bank shares plunged 31% in a week after two major events wiping out a decade of gains. The heavy selling pressure led the stock to close at Rs 672.65 on the NSE on March 13.
CLSA compared RBI's decision on IndusInd Bank's leadership tenure and its move with RBL Bank in 2021. Back then, RBL Bank's MD was granted just a one-year extension before a PSU banker was appointed leading to a 60% stock decline.
Yes Bank faced a similar brief market reaction when the RBI suddenly replaced its CEO. While initial concerns arose, a later report found no major divergence in Gross Non-Performing Loans (GNPLs). CLSA expects IndusInd Bank to experience similar volatility before stabilising based on fundamentals.
CLSA stated that if IndusInd Bank meets expectations over the next 4-6 quarters, investor concerns are likely to ease.
CLSA reduced its FY25 net profit forecast for IndusInd Bank by 25% citing the one-time impact from its derivative portfolio loss. It also lowered loan growth projections by 2% for the next 2 years expecting the bank to prioritise addressing existing challenges.
CLSA highlighted 2 key positives for IndusInd Bank in the near term, a recovery in microfinance and improved margins due to better banking system liquidity and potential rare cuts. Additionally, a non-fundamental boost could come if the promoter secures RBI approval to increase its stake after acquiring Reliance Capital.