On Friday, Goldman Sachs made a significant adjustment to Indusind Bank Ltd's (IIB:IN) stock rating, downgrading it from Buy to Neutral. The firm also reduced the price target for the bank's shares to INR 1,090 from the previous INR 1,318. The revision comes as Goldman Sachs analysts recalibrated their earnings per share (EPS) estimates for the upcoming fiscal years, noting a range of influencing factors.
According to Goldman Sachs, the downgrade was influenced by a 5%, 16%, and 18% cut in EPS forecasts over FY25, FY26, and FY27 respectively. This recalibration was prompted by a slowdown in Indusind Bank's revenue engines observed over the past two quarters, which is expected to continue. Rising delinquencies in the commercial retail portfolio, including micro, small, and medium enterprises (MSMEs) and commercial vehicles (CVs), along with slower loan growth that aligns with sector trends, are projected to affect the bank's profitability.
Goldman Sachs anticipates an average return on assets (ROA) of 1.3% for Indusind Bank over FY25-27 and a compound annual growth rate (CAGR) of 1% in EPS over FY24-27, a notable decrease from the previously expected 16% growth over FY25-27. The analysts have taken into account the broader industry patterns and have provided insights into these in a related note.
The report also highlights a shift in investor sentiment, with a move from price-to-earnings (P/E) to price-to-book (P/B) multiples. This change is attributed to the limited visibility on the bank's earnings trajectory following the third-quarter earnings release. Indusind Bank's stock is currently trading at 1X FY26E P/B, which Goldman Sachs deems fair when considering the bank's projected ROAs of 1.3%, loan growth of 14%, and return on equity (ROE) of 11%.
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