Sell-Side Analysts’ Blind Faith in IndusInd Bank Need Not Blind Investors

This note was appreciated by my institutional clients with a prominent Hong Kong-based institutional investor using it to train their in-house analysts on how to cross check senior management commentary.


EXECUTIVE SUMMARY. Indusind Bank not only declared 4QFY2019 results far below consensus expectations, but FY2019 net profits have been inflated by a significant increase in net deferred tax asset (DTA). As usual, the business media and sell-side analysts have ignored the significance of the rise in DTA in inflating profits in the case of HDFC Bank, Yes Bank and now at Indusind Bank. The sell-side, in near unanimity, is bullish on a bank which reported two consecutive years of fudged accounts, and whose credit and risk management made an ill-advised, large unsecured loan to the insolvent IL&FS and the bank consistently guided for a much lower provision for this loan than warranted. The sell-side is, instead, enthused by the bank’s disclosure that its stressed exposure is only 1.9% of its loans. Such is the quality of analysis in an over-brokered market.

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