Diet Report : Banking & Financials - IndusInd Bank by Elara Capital
More uncertainty ahead
In a key development, Mr. Sumant Kathpalia, who has served as the MD and CEO of IndusInd Bank (IIB IN) for the past five years, has resigned with immediate effect. This follows the resignation of Deputy CEO Mr. Arun Khurana just yesterday. This potentially raises concerns on several aspects but more importantly two critical facets: (1) uncertainty in leadership, further contributing to an already ambiguous environment regarding the bank’s strategic direction, and 2) potential financial implications given the hit to customer confidence. Additionally, the likelihood of further transitions in key managerial positions in the coming months adds to the instability. We believe this could elongate the recovery trajectory. Thus, we maintain Sell on the stock with TP at INR 830 and remain watchful of further developments.
Leadership exits – Domino effect: Recently, IIB has witnessed a series of negative events. These include: (1) the resignation of CFO Mr. Gobind Jain and ongoing attrition at senior levels, (2) the MD and CEO receiving a shorter tenure extension for a second time, (3) deficiencies identified in derivatives accounting practices, (4) the resignation of Deputy CEO Mr. Arun Khurana and 5) the most recent and significant development — the resignation of Mr. Kathpalia (MD and CEO).
Transitory challenges persist: Following the exit of the MD and CEO and the Deputy CEO, the Board has approached the Reserve Bank of India (RBI) seeking an approval to form a “Committee of Executives” to carry out the responsibilities of the CEO in the interim. This is a temporary measure to ensure operational continuity, but uncertainty during the transition period persists. This puts IIB in a position of vulnerability and raises many open-ended questions – viz., would there be an RBI nominated director? How long would the entire transition last? Could there be further transitions?
Financial implication likely: With multiple negative events raising credibility issues, the possibility of the deposit being hit cannot be ruled out as customer confidence is affected. Core profitability would be hit and more importantly, recovery will take time.
Maintain Sell with a TP of INR 830: Past year has been challenging for IIB, considering constant fall-outs. There has been a >20% correction in the past six months. The stock currently trades at 0.8x FY27E P/BV. We shall monitor related changes before revising estimates basis this development, as concerns are material. We continue to maintain Sell on IIB with TP at INR 830, and remain watchful of further developments.
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SEBI Registration number is INH000000933
