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IndusInd Bank has seen sharp reaction with a steep 27% decline

ICICIdirect Research 13 Mar 2025 DISCLAIMER

IndusInd Bank has seen sharp reaction with a steep 27% decline in its stock price in a single day, erasing nearly ₹19,000 crore in market capitalization, despite the pre-tax impact on net worth being limited to 2.35%. The magnitude of market reaction appears disproportionate to the actual financial impact, depicting loss of investor confidence. A series of announcements in past 2 quarters could be attributable to 53% decline in stock price since September 2024.

Healthy exposure to microfinance segment (~9% as of Dec’24) has impacted earnings in last 3 quarters, given microfinance sector facing challenge of overleveraging borrowers.

Resignation of CFO – Gobind Jain on 17 Jan 2025, just prior to announcement of Q3FY25 results, citing intentions to pursue opportunities outside the bank.

RBI has allowed extension of 1 year instead of 3 years to the incumbent MD & CEO, Sumant Kathpalia, despite board approval. This was for the second time when MD & CEO was allowed sub-optimal extension (i.e., less than 3 years).

Disclosure regarding discrepancy in derivatives portfolio, pertaining to period before April’24, found in internal review with an estimated impact of 2.35% of Dec’24 net-worth (post tax basis) i.e ~₹1550 crore. The derivative position is related to foreign currency borrowing/ deposits wherein internal trade was accounted at Swap cost and not MTM. Management has appointed an external agency to conduct independent audit and validate internal findings along with ascertaining exact impact.

Central bank asking the board to propose external candidate for CEO and COO (as per media sources) makes change in leadership certain, however, creates an ambiguity on next leadership and thus business strategy. Thus, we recommend a “Hold” rating on the stock with a target price of ₹800 per share, valuing the bank at 0.8x FY27E ABV. Await clarity on leadership for re-rating on the stock.    

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