Up over 15% in 5 days, is this Nifty bank stock on track for a major re-rating?

Aided by steady delivery on growth and return metrics, analysts say the stock is on track for valuation re-rating.

Domestic brokerage

, which is among the most bullish on the bluechip stock, is impressed by IndusInd’s NII (net interest income) growth of 16 per cent year-on-year (YoY) and stable NIMs (net interest margins) of 4.21 per cent.

Stating that Q1 growth was not only robust but broad-based too, the brokerage is confident that

will deliver 1.7 per cent/1.9 per cent RoAs and 15 per cent/16 per cent RoEs by FY23E/FY24E, respectively.

It has a target price of Rs 1,420 which implies an upside potential of 50.6 per cent on the stock.

Global brokerage Nomura, which has increased its target price to Rs 1,310 on the counter, says that better growth and a favourable loan mix towards higher-yielding book should continue to support NIM and drive core PPoP (pre-provisioning operating profit) growth.

Describing the bank as being on a recovery path, Nomura analyst Nilanjan Karfa said microfinance & vehicle loan growth and restructuring performance are key triggers.

Driven by better fee income, lesser treasury losses and some improvement in NIM (net interest margin) in its June quarter report, Karfa has increased the FY23 EPS estimate on IndusInd Bank by 6.6 per cent.

In the June quarter, IndusInd reported a strong 65 per cent YoY earnings growth led by around 10 per cent growth in operating profits and a 30 per cent decline in provisions. “Slippages were higher and driven by the restructured portfolio. The bank is still taking its time to get out of the post-pandemic asset quality stress but it appears that we are closer to the end and focus would gradually shift to core business performance. This would be the key re-rating trigger,” Kotak Institutional Equities said in a report.

The brokerage has a target of Rs 1,000 on the stock that ended Friday at Rs 942.80 on BSE. In the last one-year period, the stock is down almost 4 per cent.

Out of the 41 analysts with coverage on IndusInd, 31 have strong buy recommendations. The average target price of Rs 1,203 signals an upside potential of 26.3 per cent, according to Trendlyne data.

Analysts at

said over the last few years, the bank management has taken steps in the right direction (risk calibrated growth approach, retailization of deposit profile, balanced fee mix) which should start bearing fruits incrementally, resulting in improvement in return profile of the bank.

“IIB trades at inexpensive valuations of 1.1x FY24E BVPS and we expect the stock to rerate upwards aided by steady delivery on growth and return metrics. We maintain BUY with a TP of Rs 1,270, valuing the bank at 1.6x FY24E P/BV,” JM Financial said.

Securities, however, opines that IndusInd is likely to find it difficult to achieve the combination of high portfolio growth and stronger profitability vectors.

The brokerage has a reduce rating on the stock with a target price of Rs 953.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)