Should I buy shares of IndusInd Bank at the current price?

Prior to answering the question, let us look at the financials of IndusInd Bank. The stock has been a value destroyer for investors in the past 5years.

With a Beta(Signifier of the volatility of the stock) > 1.5, the stock gyrates heavily when there are

• Bad results
• Profit booking, or
• General weakness in the Market owing to Macro or Micro Developments

The shareholding of the bank is spread between

• Promoter (IndusInd International Holdings Ltd (IIHL))
• Foreign Institutional Investors (FII)
• Domestic Institutional Investors (DII)

From the above pie distribution, we can see that the fraction of FII’s is much higher leading to more volatility in the stock.

Equity of the company is pledged in order to raise funds. The bank has seen an increase in the pledge %. The above chart shows how the holding and pledge are placed as of the last quarter of the financial year. This also raises concern among investors as pledging has seen issues in companies like ZEEL etc.

With an innovative approach to banking, New(IDFC First, etc.) & Established Private Banks(HDFC Bank, Axis Bank, ICICI Bank, etc.) have grown and snatched the market share from IndusInd Bank

Few other reasons include NPA (Non-Performing Assets) & Provisioning as mandated by the Reserve Bank of India(RBI) and technical glitches as shown below

Despite having stated all the reasons for the downside in the stock, there are a lot of positives linked to the stock

• According to Brokerages, the bank is set to report a 54% year-on-year rise in net profit to Rs 1,315 crore for the quarter ended December
• Bank intends to benefit from the Insolvency process despite a haircut in the resolution especially linked to its telecom sector exposure
• The credit cost & slippages are about to come down for the bank despite the whistleblower instance regarding lending practices

Having stated all this, the bank is priced well considering its peers by taking into account the challenges and threats. If the investor has a long-term horizon(7–10years) then, they can either buy-in or wait for some more correction prior to taking an equity stake in the private sector lender. This is when the real returns can be seen as shown in the chart below that incorporates down cycles.

Hope this helps

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Happy Investing!!

References:

1. IndusInd Bank Share Price, IndusInd Bank Stock Price, IndusInd Bank Ltd. Stock Price, Share Price, Live BSE/NSE, IndusInd Bank Ltd. Bids Offers. Buy/Sell IndusInd Bank Ltd. news & tips, & F&O Quotes, NSE/BSE Forecast News, and Live Quotes
2. Hindujas hail RBI move; may up stake in IndusInd from 15% to 26%
3. 84K loans disbursed to clients without consent; glitch rectified: IndusInd Bank
4. IndusInd Bank plunges 30% on worries over telecom exposure
5. IndusInd Bank Q3 Preview | PAT To rising 54% YoY But MFI Business May Struggle