Macquarie has downgraded IndusInd Bank to 'Underperform,' citing concerns over poor return on equity and slashing the target price significantly. The downgrade follows the discovery of fraud and corporate governance issues, leading to expectations...
By ET Bureau | Updated:
IANS
Despite the frontloading of the interest rate cut, margins of banks are expected to recover completely in FY27.
Mumbai: Brokerage Macquarie has downgraded IndusInd Bank to 'Underperform' from 'Outperform' due to expectations of poor return on equity (RoE). It reduced the target price for the lender to ₹650 apiece from ₹1,210 implying a downside risk of 25% from Thursday's closing.
Analysts at the brokerage cut expectations on sustainable return on assets to 1% from 1.4% led by lower margins and higher credit costs and the new CEO appointment will be a key aspect to look out for.
"After the discovery of fraud and corporate governance issues, we expect the bank to run-down the MFI (microfinance institutions) portfolio, remain cautious in building its asset base and find difficulties in growing its retail liability franchise," said the analysts in a note.
IndusInd Bank's shares plunged 27% on March 11 - a day after the bank disclosed accounting discrepancies in its derivatives portfolio, related to forex transactions worth 2.35% of the bank's net worth. This was followed by the resignation of the CEO and deputy CEO.
"While PB Fintech has positively surprised on the growth in life and health insurance segment, which is visible in our revenue CAGR (35% over FY24-FY27F), we believe current valuations at 65x FY27F P/E adequately factor in the same," said the brokerage.
ADVERTISEMENT
Despite the frontloading of the interest rate cut, margins of banks are expected to recover completely in FY27.
