IndusInd Bank's net profit for the quarter ending September 2024 dropped by 39%, falling short of street estimates. Analysts attribute this decline to rising operating expenses and a slower growth in loan growth. Despite this, the bank remains optimistic about its performance in the second half of the fiscal year, citing growth in microfinance and vehicle finance portfolios. However, experts have downgraded the stock to 'Hold' and anticipate an overhang in the near term.
The recent financial results of IndusInd Bank have caused investor concern over the bank's microfinance segment and overall loan growth projections. Despite a 5.3% increase in net interest income, the bank reported a 40% year-on-year drop in net profit. CEO Sumant Kathpalia has tempered loan growth expectations for the year due to challenges in the microfinance portfolio. The bank's NIM also fell by 0.21%, but efforts are being made to improve deposit growth and manage loan quality. Kathpalia expects margins will normalize by the end of the fiscal year.
IndusInd Bank's shares have plummeted 28% this month, causing it to fall to 12th position among India’s most valuable banks. This decline was triggered by a 19% drop in shares on Friday, the largest decline in four years, following disappointing Q2 earnings. The bank noted a 40% year-on-year decrease in net profit due to higher provisions for microfinance portfolio slippages, resulting in a loss of ₹18,500 crore in market capitalization. The steep drop in IndusInd Bank’s shares was mainly attributed to the decrease in its microfinance loan book, resulting in lower margins and fee income. The bank's management has revised its loan growth expectations and expressed caution regarding the microfinance sector. However, analysts are optimistic about potential recovery driven by rural growth and expect overall slippages to remain manageable in the near future.
IndusInd Bank's stock plummeted 15% after the lender reported a significant drop in net profits for the second quarter due to stress in the microfinance sector and increased provisions for bad loans. The bank's management highlighted the growing strain on microfinance loans, which make up 9% of their loan book, particularly in tier-2 and tier-3 cities. With the overall gross non-performing asset ratio also on the rise, investors are cautious about the bank's future performance.
The renowned brokerage firm Bernstein has initiated coverage on three stocks in the Indian banking sector - Bajaj Finance Ltd, IndusInd Bank Ltd, and Muthoot Finance Ltd. It has recommended a 'Market-Perform' rating for Bajaj Finance and 'Outperform' ratings for IndusInd Bank and Muthoot Finance. Bernstein has identified the Indian banking sector as a "land of compounders" and highlights the strong credit growth, favorable asset quality, and healthy margins. While the large private sector banks continue to be top compounding stories, niche lenders such as non-bank financial companies (NBFCs) and housing finance companies (HFCs) also offer promising growth opportunities. Bernstein values each stock based on their earnings potential and target prices for investors.