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IndusInd Bank (IIB) reported a sharp jump in profitability to Rs10.4bn, at 61% above our estimates mainly driven by higher NII (+4.7% vs estimates), higher other income (+4.8% vs estimates), and lower operating expenses. The credit portfolio declined by -2% yoy but grew 3% qoq due to heavy lifting by the wholesale segment. Reported NIM expanded by 18bps qoq to 3.57% aided by lower cost of funds and interest on IT refunds, while core NIM moderated to 3.35% in 1QFY27. Management sees substantial room for margin improvement over the medium term, backed by a ~150bps funding cost gap vs peers and increasing share of granular retail, affluent and NRI deposits. Asset quality also showed signs of improvement, with slippage ratio moderating to 2% in 1Q from >3% in 3QFY25, leading to lower credit cost. Though IIB’s long term strategy is still evolving, the mgmt said it targets achieving growth broadly in line with system credit growth in FY27. This playing out, coupled with moderation in credit cost and a conscious effort to bring down opex, is likely to help IIB gradually secure 1% exit ROA in FY27 from the 0.45% base in 4QFY26. We reiterate BUY; raise TP by 9.1% to Rs1,200 from Rs1,100 (value IIB at 1.5x Jun-28E ABV)

Growth supported by Wholesale recovery; margin outlook improves

IIB’s loan book declined 2% yoy but grew 3% qoq, driven by revival in the corporate segment (+16% qoq) with portfolio calibration. While 1Q growth was led by wholesale banking, IIB expects the growth momentum to broaden over coming quarters, supported by improving retail disbursements (16-18% qoq), recovery in MFI and vehicle finance (VF) as well as acceleration in SME. Core NIM was down by 4bps to 3.35% due to higher mix of wholesale and secured retail loans. Management expects some near-term pressure in 2QFY27, with margins likely to improve in 2HFY27 as growth in higher-yielding segments such as VF, retail, and MFI accelerates. IIB reiterated its intention to grow broadly in line with the industry during FY27, while targeting exit ROA of 1%.

Asset Quality improves; Credit Cost outlook strengthens

Asset quality continued to improve with slippages moderating to 2%, resulting in an 18bps qoq decline in GNPA ratio to 3.25%.NNPA improved to 0.95%, while PCR was stable at ~71%. Management expects further moderation in credit costs as stress in the microfinance and retail portfolios normalizes. IIB also restated a one-time ECL transition hit of 1-1.5% of loans, with limited recurring earnings impact thereafter.

We retain BUY on IIB; raise TP by ~9%

We expect ROA to further improve to ~1.1-1.3% over FY28-29E, as growth/asset-quality recovery gains see more traction. Improving sectoral tailwinds (growth/margin/asset quality) and favorable sentiment toward large private banks are also likely to aid IIB’s rerating. We reiterate BUY and raise TP to Rs1,200 (valuing the bank at 1.5x Jun-28E ABV). Key risks to our call: Earlier-than-expected business and asset quality turn-around.

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