IndusInd Bank - BUY

India Infoline News Service | Mumbai |

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.

CMP Rs453, Target Rs495, Upside 9.3%

Loan growth to trough soon

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%.  


Financial summary
Y/e 31 Mar (Rs m)
FY13
FY14E
FY15E
FY16E
Total operating income
35,958
47,806
59,778
74,896
Yoy growth (%)
32.4
32.9
25.0
25.3
Operating profit (pre-provisions)
18,395
25,676
31,783
39,623
Net profit
10,612
13,945
18,206
23,030
yoy growth (%)
32.2
31.4
30.6
26.5





EPS (Rs)
20.3
26.6
34.7
43.9
Adj. BVPS (Rs)
143.3
163.5
190.2
225.1
P/E (x)
21.9
16.7
12.8
10.1
P/Adj.BV (x)
3.1
2.7
2.3
2.0
ROE (%)
17.5
17.0
19.1
20.6
ROA (%)
1.6
1.8
1.9
1.9
Source: Company, India Infoline Research
BSE 1,669.05 [2.50] ([0.15]%)
NSE 1,669.25 [1.80] ([0.11]%)

***Note: This is a NSE Chart

 

Advertisements

  • Save upto Rs.2.67 lakh with Pradhan Mantri Awas Yojana ...Know more
  • Now Save Rs.3150 on your Demat Account ...Click here
  • Now get IIFL Personal Loan in just 8* hours...APPLY NOW!
  • Get the most detailed result analysis on the web - Real Fast!
  • Actionable & Award-Winning Research on 500 Listed Indian Companies.