IndusInd Bank shares crash 27%; why, and what fresh stock price targets suggest

Back-to-back negative developments dragged IndusInd Bank Ltd shares down for the fifth straight session on Tuesday. The banking stock fell 27 per cent, as the private lender declared a preliminary impact of 2.4 per cent of its net worth due to a change in the valuation of derivatives transactions, leading to a flurry of downgrades on the stock. Analysts said an adjustment would be required, which would lead to losses for the private lender in the March quarter.

IndusInd Bank eventually closed the day at Rs 657.25 on BSE, down 27.02 per cent. This is the same level IndusInd Bank traded at in early November 2020.

Kotak Institutional Equities cut its target price on the stock to Rs 850 from Rs 1,400 earlier, while downgrading the stock to 'Reduce' from Buy'. MOFSL suggested a revised target price of Rs 925. ICICI Securities suggested a target price of Rs 850. Nuvama sees the stock at Rs 750 while Nirmal Bang pegs the stock at Rs 900. PL Capital sees the stock at Rs 1,000. The stock hit its lower circuit at Rs 720.50. At this price, it is down 53 per cent in the past one year.

These discrepancies were identified by the bank in September-October 2024, after it started reviewing its derivatives book post RBI's September 2023 circular on new investment guidelines and as per these new guidelines internal trades had to be discontinued. Its CFO resigned before the December quarter earnings. And now, the RBI has extended the CEO tenure to only one year.

"In our view, this episode had a bearing on RBI’s decision to extend MD & CEO’s tenure only for one year," PL Capital said. It said the P&L would be hit by Rs 2,100 crore (pre-tax), prima-facie, mainly effected in interest expense while the remaining would be adjusted against trading income.

Emkay Global said the management indicated that MFI stress is likely to be elevated in Q4FY25, as also the credit cost, which could be due to the continued impact of MFIN guardrails and the recent ordinance in Karnataka disrupting collection efficiency, even that of registered lenders.

Emkay Global fears that the MFI stress could spill into Q1FY26, and thus normalisation could be expected from Q2FY26 onwards.

"The hit is likely to be routed through P&L in Q4FY25, which in our view, could severely dent reported profitability; may even report a loss in Q4FY25," ICICI Securities said.

The brokerage feels the discrepancies reflect poorly on internal control. IndusInd Bank was recently in news after the CEO Sumant Kathpalia was given only one year extension against the board’s application for three years.

"The time line is discomforting—the CFO resigned just before the Q3 earnings, the CEO recently got a one-year extension instead of three and now a derivatives-induced dislocation. We believe IIB’s credibility and earnings shall be impacted," Nuvama said.

MOFSL said We believe the board will expedite the process of evaluating both internal and external candidates to hire a suitable successor, which should help alleviate concerns and improve investor confidence.

"We believe the board will expedite the process of evaluating both internal and external candidates to hire a suitable successor, which should help alleviate concerns and improve investor confidence," MOFSL said.

Nirmal Bang said the stock will see an overhang in the near to medium term due to slowdown in loan growth, stress in unsecured loan segments, limited extension of 1 year given to MD & CEO Sumanth Kathpalia and additional impact from derivatives accounting.