IndusInd Bank Shares Downgraded by ICICI Securities with Target Price Rs 650
IndusInd Bank has found itself navigating treacherous waters, with ICICI Securities downgrading the stock from HOLD to SELL, citing governance irregularities, executive instability, and accounting concerns in its microfinance portfolio. The brokerage cut its target price from Rs 720 to Rs 650, implying a 17% downside from the current market price of Rs 780. Investor sentiment has taken a serious hit following revelations of inflated interest income, sudden top-level resignations, and rising regulatory scrutiny. ICICI projects subpar profitability and single-digit loan growth for FY25–27E, warning of a prolonged period of uncertainty for the private lender.
Inflated Interest Income Adds to Credibility Concerns
IndusInd Bank disclosed an internal audit finding where Rs 6.74 billion of interest income was overstated in its microfinance portfolio during the first nine months of FY25. This has since been reversed, but:
The adjustment impacts Net Interest Margin (NIM) by ~17 basis points on a recurring basis.
An additional Rs 5.95 billion in ‘unsubstantiated balances’ was found in other assets and liabilities, clouding transparency further.
These developments severely undermine the trust in the bank’s reported financials and come on the heels of prior shocks, including a derivative loss of Rs 20 billion.
Executive Exodus and Weak Board Oversight
The abrupt resignations of the MD & CEO, Deputy CEO, and CFO in recent months have left the bank under interim leadership. The departures occurred:
Without any internal investigation or clawback provisions, raising red flags on board control.
A panel of executives now temporarily steers operations, with no full-time director appointed yet.
Credit rating agencies have reacted by assigning a negative outlook to IndusInd’s ratings, further denting market confidence.
Growth Forecast Cut Amid Strategic Repositioning
ICICI Securities now expects IndusInd Bank to underperform the sector average, estimating loan book growth at just 8% CAGR between FY25 and FY27. Key headwinds include:
Elevated exposure to riskier sectors: MFI (9% of loans), gems & jewellery (2.5%), and real estate (3.4%).
Weakening liability franchise which may require correction at the cost of growth or margins.
The bank’s RoA is expected to stay below 1% for the foreseeable future, a stark drop from its historical average.
Q4FY25 Snapshot: Profit Collapses 63% YoY
The latest quarterly earnings report was underwhelming:
Net Interest Income (NII) for FY25 is estimated at Rs 200.7 billion, down from Rs 206.2 billion in FY24.
Operating profit dropped to Rs 135.4 billion from Rs 157.4 billion.
Net profit plunged 63% YoY to Rs 33.1 billion.
| Metric | FY24A | FY25E | FY26E | FY27E |
|---|---|---|---|---|
| Net Profit (Rs bn) | 89.5 | 33.1 | 52.4 | 57.4 |
| EPS (Rs) | 115.0 | 42.5 | 67.4 | 73.7 |
| RoA (%) | 1.8 | 0.6 | 0.9 | 0.9 |
| RoE (%) | 15.3 | 5.2 | 7.8 | 7.9 |
Valuation No Longer Attractive Despite Price Correction
Despite the 45% decline in stock price over the past 12 months, ICICI believes current valuation multiples remain unjustified given the risks:
| Metric | FY25E | FY27E |
|---|---|---|
| Price / Adjusted Book (x) | 1.0 | 0.8 |
| Adjusted Book Value (Rs) | Rs 813.5 | Rs 925.0 |
| Target Valuation Multiple | 0.8x FY25E ABV | |
| Revised Target Price | Rs 650 | |
ICICI previously valued IndusInd at 0.8x FY27 ABV but has shifted the base to FY25 due to persistent uncertainties.
Asset Quality Deterioration on the Horizon
With provisioning likely to remain elevated, asset quality metrics are expected to weaken further:
Gross NPA may rise from 1.9% to 3.4% by FY27.
Provision Coverage Ratio (PCR) will hover around 70%–75%.
Net NPA / Net Worth is forecast to hit 5.0% by FY27, up from 3.1% in FY24.
Slippages and risk-weighted asset accumulation could erode capital buffers, limiting strategic flexibility.
Shareholding Pattern Indicates Institutional Nervousness
There’s been visible churn among large holders:
Promoter stake has fallen to 15.8% in March 2025 from 16.4% in September 2024.
Institutional holding dropped to 64.7% from 69.1%.
FIIs saw marginal recovery in March after a sharp dip in December, now holding 29.5%.
Weak institutional conviction further reinforces the SELL stance.
Conclusion: An Uphill Climb for IndusInd Bank
IndusInd Bank’s latest troubles represent more than an earnings blip—they signal a deeper systemic and governance malaise. The combination of management voids, financial misstatements, and operational uncertainty makes the investment outlook precarious. While potential leadership hires or regulatory reprieve could stabilize sentiment, the risk-reward ratio remains unfavorable for now.
ICICI Securities Recommendation:
Rating: SELL
Target Price: Rs 650
Current Market Price: Rs 780
Downside: -17%
