We expect IndusInd Bank’s (IIB) consumer finance (CF) segment loan growth to bottom‐out over the next couple of quarters and gradually improve thereafter. The loan mix which in recent quarters has significantly moved towards the corp & commercial banking (CCB) segment would shift towards CF segment in FY15/16. Growth improvement in the CF segment would be driven by sustained robust traction in non-vehicle loans and cyclical growth revival in vehicle loans.
Robust NIM and fee growth to accommodate branch investments
Aided by improvement in CASA and uptick in the blended lending rate, IIB’s NIM has been stable despite significant spike and volatility in wholesale funding rates. The longer term margin outlook appears robust as wholesale rates are expected to soften, CASA improvement will continue supported by brisk network expansion and blended lending yield is likely to come-off very gradually due to fixed‐rate nature of consumer financing book and loan mix shift in its favour. We estimate bank to deliver NIM of 3.6‐3.8% in the coming quarters. Fee growth remains buoyant for IIB and materially ahead of the growth in balance sheet. Notwithstanding bank’s plans to expand network aggressively over the next two years, the cost/income ratio is estimated to be stable.
Asset quality strong except for the CV portfolio
IIB’s asset quality has been fairly resilient over the past two years; Gross NPL ratio has inched-up only marginally whereas Net NPL ratio has been steady. Annualized delinquencies have moved in a range of 1-2% not witnessing any persistent uptick. It is only in the CV portfolio where stress has persisted, but bank believes that delinquencies would moderate from Q1 FY15. In the CCB segment, slippages have been benign so far but watch-list has seen an increase. However, concerns should gradually dissipate with economic recovery.
Profitability to stay intact; earnings growth to be robust
While provisioning could remain higher-than-normal in near term, IIB should be able to hold RoA supported by margin uptick and strong fee growth. We estimate the bank to deliver industry‐best earnings CAGR of 28‐30% over FY13‐16. Current valuation of 2x FY16 P/ABV is reasonable given the top-notch growth and profitability profile. Capitalization is also robust with Tier-1 at 13.3%.
| Y/e 31 Mar (Rs m)
| Total operating income
|| 74,896 |
| Yoy growth (%)
|| 25.3 |
| Operating profit (pre-provisions)
|| 39,623 |
| Net profit
|| 23,030 |
| yoy growth (%)
|| 26.5 |
| EPS (Rs)
|| 43.9 |
| Adj. BVPS (Rs)
|| 225.1 |
| P/E (x)
|| 10.1 |
| P/Adj.BV (x)
|| 2.0 |
| ROE (%)
|| 20.6 |
| ROA (%)
|| 1.9 |
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