IndusInd Bank's muted Q1 casts a cloud over FY26 earnings estimate

Private sector lender IndusInd Bank posted a lukewarm performance for the first quarter of FY25, triggering a wave of concern among analysts about its earnings momentum heading into FY26. Despite reporting a rise in profits, the bank’s loan growth, margin performance, and asset quality metrics failed to inspire confidence, casting a shadow over its near-term earnings outlook.

Q1 Snapshot: Profit Rises, but Growth Slows

IndusInd Bank reported a net profit of ₹2,297 crore in Q1 FY25, up 17% year-on-year from ₹1,959 crore in Q1 FY24. The bank’s net interest income (NII) rose modestly by 8% YoY to ₹5,435 crore, while net interest margin (NIM) contracted slightly to 4.26% from 4.29% in the previous quarter.

The loan book expanded by 18% YoY, but on a sequential basis, the growth moderated to just 3%, signaling a potential slowdown in credit demand or disbursement execution.

Analysts Raise Red Flags on Margin Compression, Asset Quality

Market watchers were quick to flag the mild compression in NIMs and rising slippages as key concerns.

“IndusInd Bank’s Q1 results were not disastrous, but they lacked momentum. The moderation in NIMs and sequential softness in loan growth raise concerns about the bank’s ability to sustain its profitability metrics in FY26,” said Suresh Ganapathy, Banking Analyst at Macquarie Capital.

Gross non-performing assets (GNPA) came in at 1.88%, up from 1.84% in the March quarter, while net NPA stood at 0.56% versus 0.55% in Q4 FY24. Though still within acceptable levels, the uptick hints at incipient asset quality pressure, particularly from the commercial vehicle and microfinance segments.

Brokerage Reactions: EPS Downgrades, Stock Under Review

Several brokerages have downgraded FY26 earnings per share (EPS) projections by 5–8% in the wake of the Q1 miss.

• Motilal Oswal revised its FY26 EPS estimate to ₹133 from ₹143, citing lower NIM trajectory and higher credit costs.

• Jefferies India retained a ‘Hold’ rating on the stock with a reduced target price of ₹1,630, down from ₹1,740.

• Kotak Institutional Equities maintained its cautious stance, stating that "while retail growth remains steady, lack of re-rating catalysts will keep the stock range-bound."

Retail Franchise Stable, But Corporate Book Under Pressure

The bank’s retail advances — particularly in vehicle finance and credit cards — continued to grow, reflecting the broader consumption trends. However, growth in the corporate loan book was sluggish, with disbursement delays and risk-aversion among large borrowers weighing on the segment.

“Retail is doing the heavy lifting, but the bank needs its corporate book to fire if it wants to meet its medium-term ROE guidance of 17–18%,” noted Aditi Sharma, Banking Analyst at Axis Securities.

Deposits also grew 13% YoY to ₹3.8 lakh crore, led by current and savings account (CASA) growth of 9%. However, CASA ratio dipped to 38.2%, down from 39.1% in the prior quarter, hinting at rising dependence on higher-cost term deposits — another factor that may compress margins in the future.

Management Commentary: Optimistic, Yet Guarded

IndusInd Bank CEO Sumant Kathpalia remained upbeat despite the softer quarter. He reaffirmed the bank’s FY25 loan growth guidance of 18–20% and ROA target of 2%.

“We are confident of achieving our full-year guidance. The fundamentals remain intact, and we are seeing good traction in high-yielding segments like vehicle finance and MFI,” Kathpalia stated during the post-earnings investor call.

However, he also acknowledged that rising interest costs and competition for deposits are pressuring margins and that the bank would focus on improving operational efficiency to offset these headwinds.

Market Reaction: Shares Slip Amid Volume Spike

IndusInd Bank shares declined 3.2% to close at ₹1,444 on the NSE post-results, underperforming the Nifty Bank index, which ended flat. Over 7 million shares changed hands on the day, significantly above the 30-day average.

“The market is clearly disappointed by the lack of positive surprises. With FY26 now appearing less certain, we may see further institutional trimming unless Q2 delivers a strong rebound,” said Manoj Bhatia, Head of Research at JM Financial.

Investor Outlook: Cautious Optimism with a Wait-and-Watch Approach

While IndusInd Bank continues to deliver decent profitability and stable asset quality, the lack of operating leverage and margin compression are likely to act as valuation dampeners.

Long-term investors may still find value if the bank can defend its niche in retail lending and improve deposit mix. But in the near term, the stock may remain range-bound as the market reassesses its FY26 trajectory.

“It’s not a broken story, but the re-rating may be deferred,” summed up Nitin Aggarwal, BFSI lead at Motilal Oswal.