IndusInd Bank shares: Despite high promoter pledge, here are four triggers for a 50% upside
Shares of IndusInd Bank are seen rising 50% in a year, according to BofA Securities. However, the stock movement in the future can be impacted by high promoter pledge of the private sector lender. Shareholding pattern data show promoters of the bank have pledged 45.5% of their holding at the end of December quarter. It implies of 11,75,16,010 shares held by the two promoters, 5,34,41,870 shares or 45.5% of their stake is pledged, which means they have taken loan against it. In comparison, promoters of none of the private sector lenders such as HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank and YES Bank have pledged their stake, show shareholding pattern data.
Apart from the high promoter pledge, no other factors seem to be of major concern for a rally in the IndusInd Bank stock.
In fact, its improved financial position has prompted BofA Securities to fix a price target of Rs 1,500 in a year. The brokerage has listed four triggers for a potential 50 percent upside to the large cap stock:
1. BofA believes that macroeconomic factors and the interest rate cycle are now finally aligned with the bank’s business mix.
2. The liabilities and AQ or capital buffers of IndusInd Bank are much-improved against peers.
3. The core profitability of the bank is the best-in-class despite de-risking.
4. BofA said that at 1.2x price-to-book value (P/B) – which measures the market valuation relative to book value – the stock is pricing in a 13.5 percent and 14 percent growth and return on equity, respectively.
IndusInd Bank is no longer a “potential” turnaround story, said BofA Securities adding that the hard part is done and the results of its work will show up as soon as the next quarter.
The bank logged a 68.7 percent rise in net profit at Rs 1,959.2 crore for the October-December quarter against Rs 1,241.4 crore in the corresponding period a year ago, beating street estimates.
EBITDA for the last quarter surged 14.82% to Rs 3,680 crore against Rs 3205 crore in the December 2021 quarter. Interest earned climbed 22.23% to Rs 9457 crore in Q3 against Rs 7737 crore in the December quarter of last fiscal.
However, the stock of the lender has fallen despite stellar earnings in the third quarter. The earnings were announced on January 18. Since then, the stock is down by Rs 168.5 or 13.78% on BSE. It closed at Rs 1222.5 on January 18.
In the current trading session, shares of IndusInd Bank gained 1.74% to Rs 1054.5 today against the previous close of Rs 1036 on BSE. The stock of the lender has risen 12.38% this year but lost 14.49% in the last one year. Total 0.88 lakh shares of the firm changed hands amounting to a turnover of Rs 9.20 crore on BSE. Market cap of the bank rose to Rs 81,868 crore.
In terms of technicals, the relative strength index (RSI) of IndusInd Bank stands at 42.3, signaling it’s trading neither in the overbought zone nor in the oversold zone. The banking stock has a one-year beta of 1.4, indicating very high volatility during the period. IndusInd Bank shares are trading higher than 5 day moving averages but lower than 20 day, 50 day, 100 day and 200 day moving averages.
The stock hit a 52-week high of Rs 1275.25 on September 20, 2022 and a 52-week low of Rs 763.75 on June 23, 2022.
Meanwhile, on March 21, brokerage Jefferies said it is the top pick in the sector. It sees an upside of 55% and has assigned a target price of Rs 1,550 on the IndusInd Bank stock.
On March 14, brokerage Sharekhan gave a target of Rs 1400 for the private sector lender. That time, the market price of IndusInd Bank was Rs 1072.2.
“IndusInd Bank (IIB) has recovered from its past challenges and has been progressing well on guided lines. Strong growth potential from a well-diversified loan book with a rising share of retail loans along with healthy capital ratios gives loan growth visibility. The bank is also speeding up its efforts to improve the retail liability franchise, which is a key positive. Retail deposits have gone up from 26% in FY2019 to 42% in 9MFY2023. Increasing share of retail deposits has been a key focus area for the bank, with 87% of incremental deposits over FY2020-9MFY2023 coming from retail deposits and CASA,” said the brokerage.
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