IndusInd Bank’s shares dropped 20% on Tuesday, reaching a new 52-week low of Rs 720.50. Multiple brokerages have reduced their ratings and price targets following the discovery of accounting irregularities in the bank’s forex derivatives portfolio. On the BSE, IndusInd Bank’s shares plunged 22.8 per cent, reaching the lower circuit at Rs 695.25 per piece, marking its 52-week low. The company’s shares dropped 21.67 per cent on the National Stock Exchange (NSE), touching a 52-week low of Rs 705.35 apiece. The shares became the biggest decliner amongst the 30 constituents of BSE Sensex.
The bank revealed a potential post-tax impact of Rs 15.8 billion, which is 2.35% of its net worth. This has sparked worries about corporate governance and future earnings clarity. IndusInd Bank issued a statement stating that its profitability and capital adequacy levels remain robust enough to withstand this singular impact.
The sharp decline in share price followed the bank’s disclosure on Monday evening regarding valuation inconsistencies in internal foreign exchange derivative transactions over a 5-7 year period. The financial impact will be reflected in the fourth quarter of fiscal year 2025, according to an ET report.
This revelation coincides with existing investor concerns after the Reserve Bank of India (RBI) limited IndusInd Bank’s CEO Sumant Kathpalia’s extension to one year, despite the board’s request for a three-year term.
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Here’s what brokerages are saying about IndusInd Bank:
Motilal Oswal:
In light of recent events, Motilal Oswal has revised downwards its stance on IndusInd Bank to ‘Neutral’, adjusting the target price to Rs 925. The firm acknowledges that whilst accounting irregularities will affect short-term results, the bank’s future leadership planning and resolution of governance issues could facilitate improvement.
“The recent accounting discrepancies related to derivative transactions have further dampened sentiments and are likely to drive losses in 4QFY25 as the bank absorbs the impact through its P&L. We expect the stock to react negatively to this development. However, we believe the board will expedite the process of evaluating both internal and external candidates for a suitable successor, which should help alleviate concerns and improve confidence in the bank’s operations,” the brokerage was quoted as saying.
Nuvama:
Following multiple adverse developments, including the CFO’s departure, limited CEO tenure extension and forex derivative markdown, Nuvama has reduced its rating for IndusInd Bank to ‘Reduce’ from ‘Hold’. The target price has been lowered to Rs 750, with expectations of sustained pressure on earnings.
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Emkay Global:
Emkay Global downgraded IndusInd Bank to ‘Add’ from ‘Buy’ and slashed its target price by 22% to Rs 875, citing the forex derivative loss and the uncertainty surrounding the final external audit report due in Q4FY25.
What’s the investment strategy for IndusInd Bank?
Given the substantial decline of 47% over the past year and an additional 20% decrease on Tuesday, some brokerage firms anticipate limited potential gains from present valuations, whilst concerns regarding trustworthiness and uncertain profit outlook continue to pose significant challenges.
Financial experts emphasise that improvement in share performance will be contingent upon three crucial factors: the results of the independent audit assessment, leadership transition arrangements, and the institution’s capability to demonstrate robust corporate governance practices to its stakeholders, says the report.
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