28 December 2012
Update | Sector: Financials
Leveraging niche presence, fuelled with capital
Upgrading FY14 EPS estimate by 8%; 20% upside
Equity Shares (m)
52-Week Range (INR)
M.Cap. (INR b)
M.Cap. (USD b)
Valuation summary (INR b)
2013E 2014E 2015E
NII (INR b)
21.9 28.5 35.4
OP (INR b)
18.5 24.5 30.9
NP (INR b)
10.5 13.7 17.2
20.1 26.3 32.9
EPS Gr. (%)
17.4 30.5 25.2
BV/Sh. (INR) 142.2 164.7 192.8
17.6 17.1 18.4
20.7 15.8 12.6
Business growth remains strong and asset quality stable. We model in FY12-15 loan
CAGR of 25%+ and credit cost of ~70bp.
Expect 2HFY13 margin to improve ~40bp+ over 1HFY13; FY14 margin to further
improve 20bp YoY on the back of capital raising and higher CASA ratio.
Addition of new products and deeper penetration of existing fee businesses led to
strong growth in fee income. As a result fee income to average assets has improved
from 1.3% in FY09 to 1.8% in FY12. Expect healthy growth to continue.
Recent capital infusion of INR20b will improve Tier 1 capital to 15%+ (highest amongst
private banks), sufficient to fuel growth for the next three years.
We upgrade our FY14 EPS estimate by 8%+ to factor in higher margins. Maintain Buy
with a revised target price of INR500 (3x FY14BV), 20% upside.
Growth and asset quality remains strong
IIB continues to enjoy strong growth (35%+ CAGR over last three years) and
superior asset quality (GNPA of 0.8%) in CV loans (24% of total book), despite
sector slowdown. The underlying success factors are: (1) strong credit appraisal,
(2) high repeat business, and (3) focus on the lower-stress SRTO segment (small
road transport operators). In corporate loans segment, IIB's asset quality is helped
by (1) diversified loan book, and (2) low proportion of term/unsecured loans.
Management is confident of maintaining healthy loan growth of 25-30% and
superior asset quality (which would keep credit cost under control).
Shareholding pattern %
5-Dec-12 Sep-12 Jun-12
Expect margins to improve gradually
We expect IIB to be a key beneficiary of likely reversal in interest rate cycle in
4QFY13 - high-cost deposits will be re-priced at a lower rate, whereas higher
mix of fixed rate loans (~50% of overall) implies lower decline in yields. Further,
improving CASA ratio and recent capital infusion of INR20b would help margin
expansion. Expect 2HFY13 margin to improve ~40bp+ over 1HFY13; FY14 margin
to further improve 20bp YoY on the back of capital raising and higher CASA ratio.
Stock performance (1 year)
Strong traction in new customers continues; positive for CASA, fees
Rapid branch expansion (to 441 from 210 in FY10), product innovation and higher
interest rate on savings deposits has led to 75%+ increase in new customers
(average of 0.08m in FY11 v/s 1.45m in 2HFY13). This is positive for CASA and fee
income generation through cross selling of third party products.
FY14 EPS estimate up 8%, revised target price to INR500
We upgrade IIB's FY14 EPS by 8% to factor in higher margins. Our comfort with IIB
is based on: (1) Strong capitalization (15%+ Tier I post 10% equity dilution), (2)
Healthy business growth (25%+), (3) Margin expansion, and (4) Healthy asset
quality outlook. Maintain
with a revised target price of INR500 (3x FY14BVE),
Investors are advised to refer
through disclosures made at the end
of the Research Report.
(Alpesh.Mehta@MotilalOswal.com); + 91 22 3982 5415
(Sohail.Halai@motilaloswal.com) +91 22 3982 5430