IndusInd Bank Ltd saw its shares tumbling 5 per cent in Monday’s trade after a cloud of uncertainty emerged over the leadership following the RBI’s decision to extend the prevailing CEO’s term to one year against three years that was sought by the private lender. Despite reports suggesting that Nippon Life is considering buying stake in IndusInd Bank, stock analysts said the likelihood of it is low.
Following the two developments, the stock fell 5.38 per cent to hit a low Rs 886.40 on BSE. With this, the banking stock is down 17 per cent in the past one month.
Analysts now largely believe that a leadership transition is in place and believes Deputy CEO & CFO Arun Khurana could be the front-runner for the CEO post. In the previous examples of Bandhan Bank and Federal Bank, where the extensions to CEOs were given for a shorter periods, the stocks had fallen in the run up to the announcements.
IIFL Securities noted that MD & CEO Sumant Kathpalia has been granted only a one-year extension. His previous re-appointment in March 2023 was also for a reduced tenure of 2 years instead of the 3 years requested by the bank.
“We believe one-year extension is to give enough time to the board to find a replacement, and should create leadership uncertainty in the interim. In similar instances at other banks previously – RBL (1 years extension against 3 yrs requested), Bandhan (3 years vs 5 years) and Federal (not approving last 1 yr extension) – there was a negative price stock reaction in the run up to the announcement s(1-14 per cent), but the stock prices recovered from their lows in the coming months,” IIFL Securities said.
The brokerage said weak profitability even in FY26, coupled with the leadership uncertainty should keep the stock price under pressure. It keep its estimates unchanged but cut target price to Rs 91.
“In our view, over 30 per cent correction in the stock price in the past six months presents an opportunity to buy into a franchise available at a sharp discount of 0.85x FY27E P/BV, as the most negative outcome will mostly be priced in. Even as we expect no near-term positive triggers, valuation juxtaposed to franchise value suggests a favorable risk-reward in the long term. Thus, we revise to Accumulate from Buy with a reduced target of Rs 1,050 from Rs 1,320,” said Elara Securities.
Jefferies has retained its ‘Buy’ rating, but cut its target to Rs 1,080 from Rs 1,200 earlier. UBS has downgrade the stock to ‘Sell and suggested a target price of Rs 850. Citi maintained its ‘Buy’ and suggested a target of Rs 1,378. Goldman Sachs is Neutral with a target of Rs 964. For Macquarie, the ‘Outperform’ call stayed. It has a target of Rs 1,210 per share on IndusInd Bank. BofA Securities has cut its target to Rs 850 and suggested ‘Underperform’.
“We expect the stock to be under pressure, despite the sharp correction, given low visibility, expectations of a soft Q4FY25E and uncertainty on top management. The CFO had also resigned recently,” Nuvama said.
MOFSL has cut its FY26 and FY27 earnings estimates by 9 per cent and 10 per cent and estimated IndusInd Bank to deliver return on asset (RoA) of 1.3 per cent in FY26 and 1.4 per cent in FY27.
“We believe that at the current valuations IIB is already pricing in most of these uncertainties, and notwithstanding near-term negativity, we find the current valuations inexpensive, particularly as operating performance starts to recover in FY26. Maintain Buy with a revised target of Rs 1,100,” MOFSL said.
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