IndusInd Bank’s Q1FY20 NII has improved by 34% yoy to Rs2,844cr against Rs2,122cr in the same quarter last year. The net profit was in line with consensus estimates, indicating a rise of 38.3% yoy to Rs1,432cr against Rs1,036cr yoy. GNPA for Q1FY20 came in at 2.15% against 2.1% qoq, an increase of 5 bps. NNPA for the quarter came at 1.23% as against 1.2% qoq, an increase of 3bps.
IIB (standalone) delivered 18% yoy growth in profits, led by lower provisions. Credit growth moderated across the retail and corporate verticals and NII undershot our estimates by 6%; however, IIB cut back on costs, thereby keeping PPoP in line with our estimates
The slowdown in the vehicle finance portfolio is likely to intensify over FY20E, while risk aversion would keep growth in the non-vehicle portfolio (including MFI) moderate.
Consolidated margin expanded 46bps qoq, of which 11bps was attributable to the standalone bank due to MCLR re-pricing and 35bps was attributable to the impact of the merger.
Yield in the corporate segment was stable at 9.06% (excluding the impact of IL&FS in 4QFY19 and the impact of re-classification of business banking and MFI loans in 4QFY19). NII growth for the standalone bank was low, at 14% yoy
Provisions included Rs305cr of loan loss provisions and Rs126cr of provisions on standard assets. There was no further provisioning on IL&FS in the quarter, nor any contingent provisions in the quarter
Growth in mid-corporate was strong at 33% YoY, while large corporate growth slowed to 12% yoy. In the retail segment, vehicle finance grew 23.2% yoy in 1QFY20 (versus 25.7% in 4QFY19), while the nonvehicle, non-MFI book grew 20.9% yoy in 1QFY20 (versus 25.6% YoY in FY19).
Asset quality remained largely stable in the quarter. GNPL ratio increased 5bps qoq to 2.15%. IIB disclosed its SMA-2 book, which stood at 0.17% of loans (down from 0.30% as of 4QFY19). Exposure to potentially stressed groups accounted for a further 1.67% of the loan book (down from 1.90% as of 4QFY19).
Total CAR increased 74bps qoq, but was lower than expected. Capital consumption increased a bit, as MFI loans on IIB’s balance sheet now attract 75% risk weight, whereas indirect lending through BHAFIN was attracting a 20% risk weight earlier.
For the first time, this quarter, the numbers include Bharat Financial financials, hence, the numbers are not comparable.
Provisions made during the quarter are at Rs430.6cr as against Rs 1,561cr yoy.
Capital adequacy ratio came in at 11.9% as against 14.16% qoq.
Restructured book stood at 8bps for the quarter.
The banks total customer stood at 2.1cr including Bharat Financial customers.
Key takeaways from the earnings call
IIB sold loans worth Rs7500cr in 1QFY20. Excluding this, loan growth would have been 33% yoy.
The bank has remained cautious in the LAP segment over the past 2-3 quarters. • Retail TDs witnessed robust growth at 42% yoy, ahead of total deposits, which grew 26% yoy.
Management indicated that margins could expand further in the coming quarters, in a declining interest rate scenario, supported by the fixed rate loan book (vehicle finance and MFI) that accounts for ~50% of total loans and lower cost of deposits going forward.
IIB’s branch network increased to 1,701 branches in 1QFY20 (adding 36 branches in the quarter). It plans to grow its branch network to 2,000 by FY20, implying an acceleration in branch additions over the coming quarters.
IIB’s customer base now stands at 2.1cr, aided by the BHAFIN merger.
BHAFIN’s AUM stood at Rs17500cr and grew 26% yoy, but was largely flat on a qoq basis. This is due to a tightening of lending norms, particularly in the states of Orissa and West Bengal, where it has imposed a cap of Rs60,000 indebtedness and 2 lenders versus the industry norm of Rs80,000 indebtedness and 3 lenders, as a precautionary measure since January 2019. This is a temporary change and would revert to industry standard once the situation in the states normalises.
Management is confident of a 35% yoy growth in AUM in FY20, aided by a 10-15% increase in the average ticket size (ATS).
Yield remained stable sequentially, at 19.75%.
BHAFIN has 7.5mn active borrowers. IIB aims to open a savings account for each of these by the end of FY20, by when the active borrowers are likely to be 9mn. This would provide a significant boost to the liability franchise. IIB is currently opening ~40-50,000 savings accounts per day among these borrowers.
IIB has an exposure of Rs2000cr to the IL&FS Group (post writeoff of Rs1000cr in 4QFY19), all of which has been classified as NPL. Provisions on the hold co. stood at 40% and on the operating SPVs at 25%.
Management indicated that no additional provisioning would be required on this exposure on account of expected bid values for the operating SPVs
The SMA-2 book stood at Rs330cr, i.e. 0.17% of loans. The SMA-1 book accounted for a further 0.18% of loans.
Exposure to potentially stressed groups accounted for a further 1.67% of the loan book, down from 1.90% in 4QFY19.
Exposure to real estate loans was stable sequentially (3.85% versus 3.90% in 4QFY19). Exposure to NBFCs, including HFCs, was also stable sequentially (4.41% versus 4.38% in 4QFY19).
IndusInd Bank Ltd is currently trading at Rs. 1,531, down by 9.85 points or 0.64% from its previous closing of Rs. 1,540.85 on the BSE.
The scrip opened at Rs. 1,546 and has touched a high and low of Rs. 1,562 and Rs. 1,518.10 respectively. So far 75,05,536 (NSE+BSE) shares were traded on the counter. The stock is currently trading below its 200 DMA.
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