1 week Ago By Heena Ojha
Morgan Stanley has cut its target price for IndusInd Bank Ltd., lowering it from Rs 1,105 to Rs 755. This adjustment comes in response to recent developments affecting the bank's earnings and overall financial outlook.
The brokerage firm has built in weaker earnings over the next few years following a weak Q4 FY25 update and has factored in a large treasury-related impact into its FY25 earnings per share estimate. Additionally, book value per share forecasts have fallen by 4% for FY26 and 5% for FY27. Amid increased uncertainty around the bank's leadership and strategy, Morgan Stanley has raised its cost of equity assumptions.
IndusInd Bank's Q4 FY25 performance was notably weak, with loan growth slowing to 1% year-on-year from 12% YoY in the previous quarter. Deposit growth also declined to 7% YoY compared to 11% YoY last quarter. The bank's Current Account Savings Account deposits fell 6% quarter-on-quarter after a 4% drop in the previous quarter.
Retail deposits and deposits from small business customers also saw a decline, falling 1.9% QoQ in Q4 FY25. This slowdown in granular deposit progression has raised concerns about the bank's balance sheet growth.
In light of these developments, Morgan Stanley has sharply reduced its earnings estimates for IndusInd Bank. Trent, IndusInd Bank Are Nifty 50 Stocks That Have Corrected Most In Current Stock Market CrashThe brokerage firm has lowered its EPS estimates by 27% for FY25 and 17% for both FY26 and FY27. The slower balance sheet growth, coupled with a weak starting point, has significantly affected earnings.
Morgan Stanley expects IndusInd Bank's stock to remain volatile due to the challenging macroeconomic environment and uncertainties surrounding its leadership and balance sheet growth. The Reserve Bank of India's decision to extend the CEO's tenure by only one year adds to the lack of clarity regarding senior management changes. Additionally, the bank's recent disclosure of a potential loss of 2.
4% net worth further contributes to this volatility.Despite these challenges, Morgan Stanley views IndusInd Bank as better positioned on capital and Pre-Provision Operating Profit strength compared to its mid-sized private bank peers. Lower-than-expected Microfinance Institution asset quality stress and improved clarity around senior management changes could serve as key upside catalysts for the bank, according to the brokerage.
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