The IndusInd Bank share price is under severe selling pressure and the stock slides 10% intra-day. Troubles for IndusInd Bank just don’t seem to fade away. In yet another negative event, IndusInd has disclosed a negative post-tax impact of 2.35% of net worth arising from a markdown on internal derivative trades. Leading brokerage houses have downgraded their ratings on the stock and significantly cut the target price as well. According to most analysts, this is a big worry because a negative derivatives’ disclosure has the potential to unnerve investors more than a back-dated NPL disclosure.
Nuvama downgrades IndusInd Bank to Reduce
Nuvama Institutional Equities believes that the news will impact “IndusInd Bank’s credibility and earnings” and as a result are downgrading the stock to Reduce from Hold. The target price has also been cut to Rs 750 a share from Rs 1115 per share. This is a massive 32% cut in the target price estimate.
Rationalising their decision, Nuvama highlighted that “given low visibility on succession and earnings, MFI stress, derivatives and change of guard,” they are downgrading the stock. The CEO explained the Board, “would consider internal and external candidates as part of succession planning.”
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According to the Bank, these internal trades pertain to 5–7 years up to March 31, 2024 and were internal FX derivatives on the bank’s forex borrowings (mainly multilateral) and deposits. IndusInd Bank hired an agency to carry out an external audit in Q3FY25. This development no doubt exacerbates the bank’s problem, coupled with the CFO resigning just before the Q3 earnings and the CEO on a one-year extension instead of three.
Motilal Oswal downgrades IndusInd Bank to Neutral
Motilal Oswal also downgraded the stock to Neutral with a revised target price of Rs 925/share. According to the Motilal report, the “stock has been on a downward trajectory, facing multiple setbacks, including weakened operating performance and the MD receiving only a one-year term Vs three-year regular term proposed by the board.” According to them, “the recent accounting discrepancies related to derivative transactions have further dampened sentiments and are likely to drive losses in Q4FY25 as the bank absorbs the impact through its P&L.”
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They believe “the board will expedite the process of evaluating both internal and external candidates for a suitable successor,
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