Brokerage firm Prabhudas Lilladher has upgraded IndusInd Bank to 'Buy' following strong quarterly fee income and healthy loan growth. While the bank targets a steady 22% growth for fiscal year 2027, the brokerage lowered the target price to Rs 1,100. Investors should track potential impacts from evolving insurance distribution regulations and rising operating costs.
Brokerage firm Prabhudas Lilladher has upgraded its rating for IndusInd Bank to 'Buy'. The decision follows a strong quarterly performance, where the bank’s core operating profit, or pre-provision operating profit, beat estimates by 5.3%. This profit growth was largely supported by broad-based fee income collected across both retail and wholesale banking segments.
The bank is currently aiming to enter a phase of aggressive growth. Loan growth, excluding Foreign Currency Non-Resident (FCNR) deposits, reached 6.2% compared to the previous quarter. Analysts at the brokerage project that the bank can sustain a loan growth rate of approximately 22% for the financial year 2027. This growth outlook is supported by a stable loan-to-deposit ratio, which currently stands at roughly 85%, indicating the bank has sufficient resources to fund this credit expansion.
Despite the positive upgrade, the brokerage has adjusted its target price for the stock to Rs 1,100, down from the earlier Rs 1,150. This change is primarily due to a valuation adjustment, shifting the price-to-book multiple from 1.2x to 1.1x as the target is rolled forward to September 2028. This adjustment reflects the brokerage's updated view on the bank's long-term book value rather than immediate market performance.
Management has reiterated a focus on maintaining a Return on Assets, a measure of profitability, in the range of 175 to 200 basis points over the medium term. However, the path to this goal faces potential challenges. Higher operating expenses remain a concern, as they could offset the benefits gained from faster loan growth in the coming fiscal years. Additionally, the banking sector faces uncertainty regarding draft regulations proposed by the Insurance Regulatory and Development Authority of India. If finalized and implemented, these changes could affect the bank's fee income from insurance distribution, which is a significant revenue source for many private banks.
For investors, the key areas to monitor will be the bank's ability to control operating costs while continuing its loan portfolio expansion. The market will also track further updates regarding insurance distribution rules, as these could influence the trajectory of future fee-based revenue.