CMP Rs360, Target Rs407, Upside 12.9%
Source: Company, India Infoline Research
- Advances continue to grow by strong 31% yoy and 6% qoq on the back of robust momentum in Consumer Financing (CF) book which grew 45% yoy and 9% qoq. Within the CF segment, the growth momentum has been broad-based with the largest pie of CV financing growing at 41% yoy/8% qoq. Relatively smaller products that grew ahead of the overall CF book were UV financing, Car financing and LAP. The Corporate & Consumer Banking (CCB) book grew at a healthy pace of 18% yoy excluding sell-downs worth Rs30bn. For the bank, loan mix shifted towards consumer financing with its contribution increasing from 50% to 52% on qoq basis.
- Slightly disappointing was moderation in savings deposits mobilization post the substantial uptick in the previous three quarters. Savings balance grew by muted 3.4% qoq despite bank offering higher rate of 6% and the brisk branch expansion. Absolute addition was low at Rs1.7bn as compared to average Rs6.2bn in Q3 FY12-Q1 FY13. Bank attributed this to migration of savings balances to FDs and other lucrative investments. Current balances witnessed an improved growth of 9% qoq and the CASA ratio of the bank was stable sequentially at 28%.
- Against our expectation of 10bps improvement, reported NIM was stable at 3.25%. Lending yield in both the segments of CF and CCB was steady at 16.2% and 11.8%. With the bank being significantly wholesale funded, cost of deposits declined by 20bps qoq. It is likely to decline sharply over the next two quarters in response to eased liquidity in the system. On the other side, blended lending yield would be relatively resilient with CF yield being stable (fixed rate loans) and CCB yields coming-off. Resultantly, we expect bank’s NIM to improve by 20-25bps over the next two quarters.
- Core fee income continues to be impressive at 40% yoy/10% qoq with all the streams growing well. Trading gains were low qoq at Rs218mn v/s Rs500mn. Despite robust branch addition (41 added in H1 FY13), opex growth was relatively benign at 26% yoy/3% qoq. C/I ratio stood at 49.4% and is likely to move in the band of 48-50% in the medium term.
- Assuaging fears, asset quality of the bank remained healthy with slippage ratio at muted 1.2%. Delinquencies were low in both the segments. No incremental perturbing stress was seen in any of the consumer financing products including the CV portfolio. Further, the absence of restructuring during the quarter led to a decline in the outstanding restructured asset ratio to 0.19%. Credit cost for the quarter stood at 11bps and for H1 FY13 was at 22bps, well within the budgeted 60bps for the year.
- Aided by moderation in opex growth and benign provisioning, RoA was sustained at 1.6%. Tier-1 capital ratio stood at 11% including H1 profits. Though this suggests healthy capitalization, the bank plans to raise equity capital in the next six months to support the longer term growth requirements. Management has hinted at 10-12% equity dilution implying fund raising of Rs17-20bn at the current price.
- In our view, IndusInd Bank would continue to command premium valuation with the only risk being an evident stress in asset quality. With NIMs set to improve, the medium-term profitability trajectory has been uplifted. IndusInd would be amongst the few banks that are likely to deliver 25-30% earnings growth and sustain higher RoAs over the next two years. Recommend BUY with 9-month target of Rs407.
|(Rs mn)||Q2 FY13||Q1 FY13||% qoq||Q2 FY12||% yoy|
|Total Interest Income||17,279||16,320||5.9||13,239||30.5|
|Net Interest Income||5,097||4,841||5.3||4,192||21.6|
|Key Ratios||Q2 FY13||Q1 FY13||chg qoq||Q2 FY12||chg yoy|
|Yield on Advances (%)||13.9||14.0||(0.0)||13.8||0.1|
|Cost of Deposits (%)||8.7||8.9||(0.2)||8.2||0.5|
|Non-interest income (%)||38.6||39.7||(1.1)||36.3||2.3|
|Non-interest in/Int exp (%)||26.3||27.8||(1.5)||26.4||(0.1)|
|Cost to Income (%)||49.4||49.7||(0.2)||49.4||0.0|
|Provisions/Avg Advances (%)||0.13||0.15||(0.02)||0.16||(0.03)|
|Gross NPA (%)||1.0||1.0||0.1||1.1||(0.1)|
|Net NPA (%)||0.3||0.3||0.0||0.3||(0.0)|
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