IndusInd Bank’s strong retail book, balanced credit portfolio mix to drive returns, says Emkay Global as it ups target

IndusInd Bank is building a strong retail franchise along with a balanced credit portfolio mix which will help the private sector lender to deliver sustainable and profitable growth, analysts said.

The bank’s management re-emphasized that building a strong retail franchisee is going to be the topmost focus area for the bank over the next 2-3 years and, thus, it aims to reach retail LCR share of 5-52% from the current 44% and 26% a few years back, Emkay Global Financial Services said in a note.

The key pillars of the liability strategy will be differentiated product and price offering; ramping up ‘home market’ share to 5% from 3.7% currently and adding new geographies; focus on affluent, NRI, and community banking; digital leverage to tap Gen Z/Millennial customers and branch expansion, the brokerage noted.

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Emkay Global Financial Services raised its earnings estimates by 1-4% over FY24-26E. It expects the bank to deliver better Return on Assets (RoA) at 1.9-2%, Return on Risk-Weighted Assets (RoRWA) at 2.6-2.8%, and Return on Equity (RoE) at 16-18% RoE over FY24-26E on the back of healthy growth, stable margins, and improving LLP. 

“The bank carries healthy contingent provision (0.5% of loans) as well as capital buffers (CET 1 at 16.3%), while any infusion by promoters to increase stake should further boost capital levels,” the brokerage said.

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The brokerage has a ‘Buy’ rating on the stock and factoring in better earnings/RoE trajectory and margin stability amid the risk of contraction among peers, it raised the target price on the stock to ₹2,000 per share from ₹1,825 earlier, implying a potential upside of more than 28% from Monday’s closing price.

IndusInd Bank delivered 21% credit growth in Q2FY24 and believes that incremental growth will be guided by its strategy to deliver better Risk-Adjusted Return on Capital (RARoC) (>2.5%) instead of just chasing growth.

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“Although vehicle financing will continue to dominate the credit portfolio, mortgages (mainly affordable housing), SME/mid-corporates, and cards will emerge as key growth drivers. The bank plans to increase the share of credit cards with far better ARR to 5% from 3% currently, while gradually pruning relatively risky MFI share to 8-10% from 11% currently and, thus, retain the present share of unsecured loans,” Emkay Global said.

IndusInd Bank share price has gained just over 6% in the past three months, while the stock is up more than 27% year-to-date (YTD).

At 11:45 am, IndusInd Bank shares were trading 0.25% higher at ₹1,561.00 apiece on the BSE.

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