On Monday, UBS maintained its Buy rating on IndusInd Bank Ltd (IIB:IN) but reduced the price target to INR1,730 from INR1,800. The adjustment follows IndusInd Bank's first-quarter financial results for FY25, which showed a profit after tax (PAT) of Rs21.7 billion.
This figure was approximately 10% lower than UBS's estimate of Rs24.2 billion. The bank's net interest income (NII) grew by 11.1% year-over-year, slightly missing expectations with a marginal quarter-over-quarter decline in margin to 4.25%.
IndusInd Bank's total provisions for the quarter saw a slight increase to 1.2% of loans from 1.1% in the previous quarter. The core pre-provision operating profit (PPOP) grew by around 3% year-over-year, impacted by the slower NII growth and a 20% increase in operating expenses. The bank's core fee income, however, went up by 11% compared to the same period last year.
The report also noted a marginal increase in gross slippages, which rose by approximately 40 basis points quarter-over-quarter to 1.79%. Despite this, the bank experienced a 15% growth in overall deposits, with retail deposits, as defined by the Liquidity Coverage Ratio (LCR), increasing by 16% year-over-year.
UBS highlighted that a modest increase in credit cost in what is traditionally a seasonally weak quarter was a positive aspect in an otherwise lackluster set of quarterly results. The firm also pointed out that clarity on management succession plans would be a key near-term catalyst for IndusInd Bank's stock.
The valuation of the stock is deemed reasonable at 1.3 times the FY26 estimated price-to-book value (P/BV), which is at a discount to peers and comparable to the valuations of the State Bank of India (SBI).
The reduction in the price target reflects the lower than expected earnings per share (EPS), as UBS stated, "We maintain Buy with a lower PT of Rs 1,730 (from Rs 1,800) as we cut EPS."
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