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IndusInd Bank Shares: Leading brokerage houses have downgraded their ratings on the stock and significantly cut the target price as well
IndusInd Bank Shares
IndusInd Bank Share Price: Global and international brokerages have lowered their target price outlooks for IndusInd Bank Ltd. following the bank’s disclosure of discrepancies in its derivatives portfolio. Analysts have warned that the bank’s credibility has taken a hit as a result of these developments.
In a filing on March 10, IndusInd Bank revealed that an internal review of its derivatives portfolio had uncovered discrepancies, leading to an estimated 2.35% adverse impact on its net worth. This is expected to potentially affect the bank’s profit by around Rs 1,500 crore, with the final impact potentially higher as an external review is still underway, according to reports.
As a response, the bank unwound all internal trades dating back to April 2024, eliminating any unhedged positions. It has since transitioned to external trades with counterparties and fully hedged all foreign currency borrowings converted to INR, based on tenor, to ensure no exposure on its balance sheet.
IndusInd Bank Hit By Downgrades & Target Price Cuts
| Brokerage | Rating | Target Price | Upside/Downside |
|---|---|---|---|
| Motilal Oswal | Neutral 🔻 | Rs 925 | 2.7% |
| DAM Capital | Neutral 🔻 | Rs 920 | 2.2% |
| IIFL Securities | Add 🔻 | Rs 910 | 1.1% |
| Morgan Stanley | Equal-weight 🔻 | Rs 900 | -0.1% |
| Kotak Institutional Equities | Reduce 🔻 | Rs 850 | -5.6% |
| Nuvama Institutional | Reduce 🔻 | Rs 750 | -16.7% |
Nuvama Institutional Equities downgraded the stock to “Reduce” from “Hold” and slashed its target price from Rs 1,115 to Rs 750 per share, a substantial 32% reduction. The brokerage cited concerns over low visibility regarding succession plans, earnings uncertainty, and stress in the microfinance sector, as well as issues related to derivatives and leadership changes.
IndusInd’s internal trades, which involved FX derivatives related to its forex borrowings and deposits, were primarily for tenors of 5–7 years up to March 31, 2024. To address the issue, the bank had hired an external agency for a full audit during Q3FY25. This situation adds to the bank’s woes, especially after the resignation of its CFO before the Q3 earnings release and the CEO’s decision to extend his tenure by just one year instead of the usual three.
Motilal Oswal also downgraded IndusInd Bank to “Neutral,” adjusting its target price to Rs 925 per share. The report emphasized that the stock had been on a downward trend due to various setbacks, including the weakened operating performance and the CEO’s shorter tenure. They noted that the bank’s accounting discrepancies, particularly related to derivative transactions, would likely result in losses in Q4FY25 as the bank absorbs the impact.
Despite the challenges, Motilal Oswal believes that a swift evaluation process for the CEO’s successor could help restore confidence in the bank’s operations.
On the other hand, Macquarie maintained an “Outperform” rating on IndusInd Bank, with a target price of Rs 1,210. The firm acknowledged the concerns raised by the issue but argued that such losses could occur when the book is not fully covered. They also speculated that the RBI’s decision to approve only a one-year tenure for the CEO may be linked to concerns over internal processes.
Kotak Institutional Equities also downgraded the stock to “Reduce” from “Buy” and cut its fair value estimate to Rs 850 per share. The firm emphasized that while the financial implications of the discrepancies are minor, the damage to the bank’s credibility would take longer to rebuild. They noted that trust is vital for investor confidence and will be difficult to regain in the short term.
Morgan Stanley shared similar concerns, stating that visibility on IndusInd Bank is diminishing due to recent events, including the CFO’s resignation, the CEO’s shorter tenure, and the disclosure of significant derivative losses. The firm downgraded the stock to “Equal Weight,” with a target price of Rs 900 per share, forecasting potential downside risks to the bank’s financial outlook.
Prabhudas Lilladher also downgraded the bank to “Hold” from “Buy” and lowered its target price to Rs 1,000 per share from Rs 1,400. The brokerage projected a 2.35% hit to the bank’s equity based on the internal review and estimated a Rs 1,580 crore impact to Q4FY25 profit after tax, which would represent a 25% cut to the bank’s FY25 profit. They also linked the shorter tenure of the CEO to this issue, suggesting it may have influenced the RBI’s decision.
