After Q2 results, IndusInd Bank shares increase by more than 3%; should you buy?

 After Q2 results, IndusInd Bank shares increase by more than 3%; should you buy?

Domestic brokerage companies maintained their optimistic perspective on the stock after the Q2 FY24 results of IndusInd Bank, the fifth-largest private bank promoted by Hinduja Group in India. The results today had a good impact on the bank shares as well. 

The shares increased 3.12% to an intraday high of $1,464.70 per share. The shares were trading up 2.13% at 1,450.60 at 11:45 a.m.

The bank reported a consistent in-line performance on Wednesday, with net interest income (NII) increasing by 18% YoY and 4% QoQ to $5,077 crore in Q2FY24, but the net interest margin decreased to 4.29% from 4.24% in Q2FY23 and 4.29% in Q1FY24.

Pre-provision operating profit (PPOP) for the bank increased by 10% to 3,881 crore for the quarter that ended on September 30, 2023, from 3,520 crore in the similar period the year before.

To 974 crore, the provisions decreased 15% YoY. The bank recorded a net profit of 2,181 crore, up 22% YoY from the comparable quarter the year before, as a result of a decrease in provisions and an increase in operational profit growth.

In terms of asset quality, the net NPA ratio was 0.57% in Q2FY24, down from 0.61% in Q2FY23, while the gross NPA ratio was 1.93%, down from 2.11% in Q2FY23.

Following the company's performance in the second quarter of fiscal year 24, local brokerage firm Sharekhan maintained its 'buy' call on the stock with an unchanged target price of $1,650 per share.

"Stable NIMs, low credit costs, and strong loan growth momentum are anticipated to underpin return ratios and earnings trajectory, which should keep RoEs at 15% in the short term. According to the brokerage, "the bank should experience faster improvement in its retail liability franchise for a meaningful re-rating from this point on."

Additionally, Kotak Institutional Equities maintained its "buy" recommendation on IndusInd Bank, increasing its target price from $1,600 to $1,650 and valued the company at 1.8X book and 12X FY2025 EPS for RoEs, going to 15%.

"On the majority of factors, we have witnessed less IIB disappointments over the last year. The stock now has a rating that is more in line with frontline banks. According to Kotak, the foundation of the outperformance is based mostly on a further decline in the existing discount to bigger rivals, particularly Axis Bank. 

"Given the absence of obvious distinction in business measures and the medium-term prognosis for asset quality, it is most probable that the market will favor relative performance over absolute performance. We also think there is a decreased chance that the IIB would be valued similarly to frontline banks. To account for the proportional variations in the bank's liabilities and asset mix, we construct a higher cost of equity," the brokerage said. 

Additionally, Nuvama Institutional Equites maintained its "buy" recommendation on the company and increased its target price from $1,620 to $1,665 per share.

"The bank's earnings for Q2FY24 are positive and broadly in line, but we view them as transformed because slippage exceeds expectations deposit growth lags loan growth, core fee growth is weak (sometimes offset by higher-than-industry making trades gains), and the bank continues to draw apart buffer provisions," stated Nuvama. 

The CEO is certain that there will be no further depletion of buffer reserves and improved deposit growth, and is still convinced that retail slippage would decrease from its current level of 3.7% to less than 3% in H2FY4. We'll keep an eye on how this plays out in Q3 FY24, it continued.