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Indusind Bank- a Value buy or a Value trap?

Updated: Sep 10, 2019

Shares of Indusind Bank have fallen by nearly 40% over the past 1.5 years.

So what is causing the erosion in stock price?


Let us analyse:-


Asset Quality-NPA concerns


Initially the stock tanked on the news of unknown exposure to the IL&FS group.The bank later clarified that they have 3000cr exposure to road assets of IL&FS and could have have high rate of recovery.


However fresh concerns on loans to DHFL, McLeod group has kept the stock under pressure.


Further the bank has 6% of its book to sub investment grade companies. With the corporate stress increasing due to tight liquidity and reluctance to lend, more companies could face problems in repaying the loans.


Auto Sector slowdown


Indusind Bank's retail book can be seen as follows:


Nearly 30% of the retail book is Vehicle Financing.The CV sales have fallen by as much as 50% in August which can put a significant questions to future loan growth for the bank.


With the Auto sector cautious and no demand recovery in the near term,this vertical for the bank could be under pressure.


Lack of any clear management succession plan


Mr. Ramesh Sobti has been instrumental in leading Indusind Bank over the last 12 years.He is instrumental in the success of the bank.However Mr. Sobti is due to retire by March 2020.The bank is still searching for a successor.


Lack of clarity regarding the successor to Mr Sobti will be a hangover for the stock.


Stanalone Banks performance remains robust


The standalone Q4FY20 performance of the bank remained robust


While the loan growth showed a 24% YoY increase,the deposits jumped by 34%.


Valuation

At a trailing Book value of 442,the Indusind Bank stock trades at a 3x P/B.


Conclusion


Indusind Bank has been a phenomenal wealth creator over the past 10 years,The standalone performance of the bank remains robust on all parameters.


However some loans could turn into NPA and thereby keeping the stock under pressure .


At the current valuation the stock is not cheap.


Disclaimer:-The author of this report is a Chartered Financial Analyst(CFA) from CFA Institute, USA, the views expressed in the above report are personal and at no point should be construed as an investment advise. Please consult your financial advisor before making any decisions. Reproduction of the above report is strictly prohibited.


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