Indusind Bank (Q4 FY14)

India Infoline News Service | Mumbai |

IndusInd Bank's loan growth was slightly ahead of our expectation at 24% yoy driven by sustained robust growth (38% yoy) in Corporate and Commercial Banking (CCB) segment.

CMP Rs487, Target Rs551, Upside 13.1%
  • Loan growth sturdy at 24% yoy; however, growth moderation in consumer finance book accentuates

  • Deposit franchise continues to improve; CASA at 32.5% 

  • NIM improvement was better-than-expected; outlook is robust 

  • Buoyant fee growth; C/I ratio improves materially

  • Elevated delinquencies in consumer financing segment remain a concern

  • Maintain BUY with 9-12 month target price of Rs551

Result table
(Rs mn)  Q4 FY14  Q3 FY14 % qoq  Q4 FY13 % yoy
Total Interest Income 21,793 21,435 1.7 18,228 19.6
Interest expended (13,981) (14,134) (1.1) (11,615) 20.4
Net Interest Income 7,812 7,301 7.0 6,612 18.1
Other income 5,229 4,802 8.9 3,679 42.1
Total Income 13,041 12,103 7.8 10,291 26.7
Operating expenses (5,851) (5,630) 3.9 (4,857) 20.5
Provisions (1,206) (1,261) (4.4) (819) 47.3
PBT 5,985 5,212 14.8 4,616 29.7
Tax (2,025) (1,743) 16.2 (1,542) 31.3
Reported PAT 3,961 3,469 14.2 3,074 28.8
EPS 30.1 26.5 13.9 23.5 28.2

Business Mix (Rs mn)  Q4 FY14  Q3 FY14 % qoq  Q4 FY13 % yoy
Advances 551,020 524,690 5.0 443,210 24.3
Consumer Finance 247,850 246,400 0.6 224,010 10.6
% share 45.0 47.0 - 50.5 -
Corp & Comm Banking 303,170 278,290 8.9 219,200 38.3
% share 55.0 53.0 - 49.5 -
Deposits 605,020 562,470 7.6 541,170 11.8
Current 97,760 88,290 10.7 88,350 10.7
Savings 99,150 92,630 7.0 70,330 41.0
Term Deposits 408,110 381,550 7.0 382,490 6.7

Ratios  Q4 FY14  Q3 FY14 chg qoq  Q4 FY13 chg yoy
NIM (%) 3.8 3.7 0.1 3.7 0.0
Yield on Advances (%) 13.7 13.8 (0.1) 13.5 0.2
Cost of Deposits (%) 8.1 8.4 (0.3) 8.1 0.0
CASA (%) 32.5 32.2 0.4 29.3 3.2
C/D (x) 0.91 0.93 (0.02) 0.82 0.09
Non-interest income (%) 40.1 39.7 0.4 35.7 4.3
Non-int inc/Int exp (%) 37.4 34.0 3.4 31.7 5.7
Cost to Income (%) 44.9 46.5 (1.7) 47.2 (2.3)
Prov/Avg Adv (% Ann) 0.90 0.99 (0.10) 0.75 0.14
BV (Rs) 164.7 161.2 3.5 141.9 22.8
RoE (%) 18.5 16.8 1.7 16.7 1.8
RoA (%) 1.9 1.7 0.2 1.8 0.1
CAR (%) 13.8 14.4 (0.6) 15.4 (1.5)
Gross NPA (%) 1.1 1.2 (0.1) 1.0 0.1
Net NPA (%) 0.3 0.3 0.0 0.3 0.0
Source: Company, India Infoline Research

Loan growth sturdy at 24% yoy; however, growth moderation in consumer finance book accentuates

IndusInd Bank's loan growth was slightly ahead of our expectation at 24% yoy driven by sustained robust growth (38% yoy) in Corporate and Commercial Banking (CCB) segment. On the contrary, growth in the Consumer Financing (CF) book continued to moderate at significant pace, from 14% yoy in Q3 FY14 to 11% yoy in Q4 FY14. The overall loan mix shifted 200bps towards the CCB segment with the CF segment share standing at 11-quarter low of 45%.

The sharp deceleration in the CF segment continues to be led by vehicle financing portfolio (segmental contribution at 76%) and within that more prominently by CV, 3W and UV financing products. During the quarter, the portfolios of CV, 3W and UV loans shrunk by 4%, 6% and 1% qoq respectively. Surprisingly, 2w loans and car loans continue to display an impressive growth of 29-30% yoy notwithstanding the weakness in underlying industry volumes. Growth in construction equipment portfolio (segmental contribution at 12%) also continues to be muted at 5% yoy thereby contributing towards moderation of the segmental growth. CF book sans vehicle loans and construction equipment financing grew at robust pace of 21% qoq/73% yoy driven by products such as credit cards (33% yoy) and LAP (77% yoy).

Within the CCB segment, growth was particularly strong in mid corporate (50% yoy) and small corporate (54% yoy) portfolios and their combined share within the segment has increased to 50% from 46% in Q4 FY13. While CCB segment could continue to drive overall loan growth in the near term, we expect the loan mix to move incrementally towards the CF segment from Q3 FY15.

Deposit franchise continues to improve; CASA at 32.5%  

Deposit growth was stronger than advances at 7.6% qoq. Savings deposits growth (7% qoq/41% yoy) remained robust and its share in deposits was sustained at 16.4%. Substantial branch addition in the past two years and higher savings rate offered have been the key drivers behind strong savings deposits mobilization. Current deposits grew by 11% qoq aided by some year-end floats thereby improving the CASA ratio to 32.5%. With wholesale rates coming-off over the past 5-6 months, the bank is likely to have raised bulk deposits which is reflected in 7% qoq growth in non-CASA deposits (Retail + Wholesale TDs).

NIM improvement was better-than-expected; outlook is robust 

IndusInd Bank's NIM expanded by 10bps qoq to 3.75%. There was a material 30bps decline in the cost of deposits driven by lower cost of bulk funding and sustained improvement in CASA franchise. The blended lending yield for the quarter was 10bps lower as compared to the previous quarter due to 25bps yield decline in CCB segment and shift in loan mix away from better yielding CF segment. Material decline in the average lending yield of CCB segment could be attributed to lower pricing of loans on the back of softening in wholesale borrowing rates. As Indusind Bank pre-dominantly has short-cycle working capital book, rate dynamics of wholesale market are transmitted immediately. However, the extent of yield decline in the CCB segment was surprising in the context of large contribution of mid and small corporate loans (carrying better yield) in incremental expansion. Average lending yield in the CF segment improved for the second consecutive quarter driven by trends in the product mix.

With outlook for wholesale rates benign, CASA improvement to continue and structural resistance in lending yield  (due to fixed-rate nature of CF book), the medium-term margin outlook for IndusInd is robust. We estimate the bank to deliver NIM in an elevated range of 3.65-3.85% during FY15.

Buoyant fee growth; C/I ratio improves materially 

Fee income growth remained buoyant at 28% yoy and continues to be much ahead of balance sheet growth (19% yoy). Key fee streams that grew at robust pace were Trade & Remittances (27% yoy), Forex (49% yoy), Investment Banking (53% yoy) and Loan processing (53% yoy). Income from investment trading/treasury activities jumped sequentially to Rs810mn thereby boosting non-interest income growth to 42% yoy. Opex growth decelerated further to 20% yoy which could be attributable to calibrated branch addition over the past couple of quarters and bank's focus on cost productivity. Driven by brisk income growth and lower opex growth, the cost/income ratio improved materially qoq from 46.5% to 44.9%.

Elevated delinquencies in consumer financing segment remain a concern

As expected, slippages continue to be elevated at annualized 1.5% of advances. Sequentially, there was a material uptick in delinquencies (Rs1.5bn v/s 1.3bn) in the CF segment and the annualized ratio stood at multi-quarter high of 2.4%. Amongst products, a pre-dominant part of the delinquencies were likely contributed by CV, UV, 3W and car financing. In each of these products, the gross NPL ratio has moved up notably during the quarter. Though company continues to suggest that credit cycle could have peaked-out in the CF segment, we remain concerned about stress manifesting in other vehicle financing products.

Slippages in the CCB segment were lower at Rs390mn v/s Rs550mn in the previous quarter. The delinquency ratio in this segment has moved in a benign range of 0.5-0.8% in recent quarters. During the quarter, the bank sold NPLs worth Rs350mn to ARCs which mitigated the increase in Gross NPL block. With provisioning on incremental delinquencies made at lower rate, the PCR declined by 350bps qoq to 70%. Consequently, the Net NPAs increased 12% qoq and the level inched-up to 0.33%. Gross credit cost for the quarter and the year was 13bps and 48bps respectively. Indusind Bank expects to rein-in credit cost within 60bps in FY15. Outstanding restructured assets continue to be negligible at 0.3% of total advances. 

Maintain BUY with 9-12 month target price of Rs551

While delinquencies in CF segment could remain high for a couple of quarters, IndusInd bank should be able to hold RoAs at 1.8-1.9% aided by margin uptick, robust fee growth and low investment related provisioning. In FY16, we estimate RoAs to further improve on the back of some moderation in credit cost; unless the bank decides to reinvest in aggressive network expansion. We believe IndusInd Bank would deliver industry-best earnings growth of 28-30% over FY14-16 and therefore, current valuation of 2.1x FY16 P/Adj.BV looks reasonable given its top-notch growth and profitability profile. A material correction in stock price from current level would provide an attractive entry level. Retain BUY and with 9-month target price to Rs551.


Financial Summary
Y/e 31 Mar (Rs m) FY13 FY14 FY15E FY16E
Total operating income 35,958 47,811 58,685 74,358
yoy growth (%) 32.4 33.0 22.7 26.7
Operating profit (pre-prov) 18,395 25,959 31,479 40,078
Net profit 10,612 14,080 18,046 23,325
yoy growth (%) 32.2 32.7 28.2 29.3
 
EPS (Rs) 20.3 26.8 34.3 44.3
Adj.BVPS (Rs) 143.3 168.4 196.0 231.5
P/E (x) 24.0 18.2 14.2 11.0
P/BV (x) 3.4 2.9 2.5 2.1
ROE (%) 17.5 16.9 18.4 20.2
ROA (%) 1.6 1.8 1.9 2.0
Dividend yield (%) 0.6 0.7 0.9 1.2
CAR (%) 17.4 13.8 13.2 12.6
Source: Company, India Infoline Research
 

***Note: This is a NSE Chart

 

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