IndusInd Bank_ Is risk reward now attractive_

IndusInd Bank Conference Call Summary Company Overview - Company: IndusInd Bank (INBK.NS) - Industry: Indian Financials - Current Price Target: Rs1,150.00, down from Rs1,400.00 - Market Capitalization: US$9.1 billion - Recent Stock Performance: Stock price has fallen 30% post-earnings due to microfinance institution (MFI) asset quality concerns [1][2] Key Points and Arguments Stock Valuation and Performance - IndusInd Bank's stock is currently trading at 1.0x F26e book value, approximately 30% lower than its 5-year average valuations [2] - The stock has corrected 30% over the past three months, compared to a 32% decline in the Bank Nifty index [2] Earnings Projections - Base Case Scenario: - MFI bad loans expected to peak at 12% of loans post-Dec-23, with 95% coverage, leading to credit costs of ~200/160 bps in F25e/F26e - Loan growth projected at 10% in F25 and 15% in F26 - Return on Equity (RoE) estimated at 9% in F25 and 11% in F26, improving to ~13.5% in F27e - Target price-to-book value (P/BV) of 1.3x indicates ~30% upside from current stock price [2] - Bull Case Scenario: - MFI bad loans expected to peak at 10% of loans with 90% coverage, resulting in credit costs of ~190/150 bps - Loan growth projected at 10% in F25 and 16% in F26 - RoE estimated at 9% in F25 and 12% in F26, improving to 15% in F27e - Target P/BV of 1.8x suggests ~85% upside [3] - Bear Case Scenario: - MFI bad loans expected to peak at 17.5% of loans with 100% coverage, leading to credit costs exceeding 200 bps - Loan growth projected at 10% in both F25 and F26 - RoE estimated at ~8% in F25 and F26, with a capital raise of Rs65 billion at ~0.9x book value - Target P/BV of 0.8x indicates ~28% downside [4] Risk Assessment - The risk-reward profile is considered not bad, but near-term risks are tilted towards the downside, with a bear case weight of 30% [5] - Regulatory uncertainty is high, with potential tightening on MFI practices and lack of clarity on CEO tenure extension [5] - Key upside risks include lower-than-expected MFI asset quality stress and reduced impact from regulatory changes [5] Financial Metrics - Earnings Per Share (EPS): - F2024: Rs115.19 - F2025e: Rs73.57 - F2026e: Rs97.71 - F2027e: Rs134.67 [8] - Price-to-Earnings (P/E) Ratio: - F2025e: 13.5 - F2026e: 10.2 - F2027e: 7.4 [8] - Return on Average Equity (RoE): - F2025e: 8.8% - F2026e: 10.7% - F2027e: 13.3% [8] Market Context - IndusInd Bank's stock has de-rated post the IL&FS crisis and is currently trading 30% below post-COVID valuations [15] - The bank has better PPoP margins and capital relative to most peer banks, indicating a stronger starting point for its balance sheet [18] Conclusion - IndusInd Bank presents a mixed outlook with potential for recovery in the long term, but immediate challenges related to asset quality and regulatory environment pose significant risks. Investors may consider gradual accumulation given the bank's stronger balance sheet and profitability metrics compared to peers [5][18]