11 July 2017
1QFY18 Results Update | Sector: Financials
IndusInd Bank
Buy
BSE SENSEX
31,747
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
S&P CNX
9,786
IIB IN
595.8
928 / 14.4
1572 / 1038
1/9/24
1570
85.0
CMP: INR1,560
TP: INR1,800 (+15%)
Mixed asset quality; strong operating performance
IndusInd Bank’s (IIB) 1QFY18 PAT grew 31% YoY (in-line) to INR8.4b. Strong
loan growth of 24% YoY (in line with management guidance) and steady NIM at
4% (+3bp YoY; ~10bp higher than expected) drove robust NII performance
(+31% YoY; 5% beat).
Robust NII performance, coupled with strong fee income growth of 25%+,
enabled the bank to deliver impressive core PPoP growth of 29% YoY. Opex
trailed total income growth, with continued moderation in employee expenses
(+18% YoY v/s 17% in 4Q and average of 25%+ in the previous eight quarters).
Both corporate (+26% YoY) and consumer (+22% YoY) loans exhibited healthy
growth. Lower growth in vehicle finance (+17% YoY) was compensated by
strong growth of ~40% YoY in retail non-vehicle loans.
GNPAs increased 21% QoQ to 1.1% of loans (0.9% in FY17), led by high
slippages in both CCB and CFD divisions. Slippages in CFD increased 45% QoQ
(+62% YoY) to INR2.6b. Restructured book declined to 0.17% (-20bp QoQ), led
by relapse of two accounts into NPA. There was a sale to ARC of INR570m
during the quarter.
Other highlights: (1)
Overall CASA ratio improved 90bp QoQ (+330bp YoY) to
~38%, led by robust SA mobilization (+65% YoY).
(2)
IIB has exposure of
~INR500m to three of the 12 accounts referred to NCLT for resolution. The
bank holds substantial provisions here, and incremental provisions are not
expected to exceed ~100-120m (may provide in 2QFY18).
(3)
The bank made
floating provision of ~INR750m during the quarter.
Valuation and view:
IIB’s key focus is to scale up on its retail operations, led by
higher share of non-vehicle retail loans by FY20. The bank is targeting 25-30%
loan growth, driven by continued branch expansion (800+ branch addition) and
strong customer acquisition (2x increase to 20m). Strong core profitability, an
improving CASA profile and healthy return ratios (RoA of 1.9%+ and RoE of 16-
18%) are the key positives. We largely maintain estimates. Maintain
Buy
with a
target price of INR1,800 (3.8x June 2019E BV).
Financials & Valuations (INR b)
Y/E MARCH
2018E 2019E
NII
75.3
94.0
OP
67.5
83.5
NP
37.0
45.9
NIM (%)
4.3
4.4
EPS (INR)
61.9
76.8
EPS Gr. (%)
29.1
24.1
BV/Sh. (INR)
383 446.4
ABV/Sh. (INR)
377 444.5
RoE (%)
17.3
18.5
RoA (%)
1.9
1.9
P/E (X)
25.2
20.3
P/BV (X)
4.1
3.5
P/ABV (X)
4.1
3.5
2020E
114.1
100.4
54.8
4.3
91.7
19.4
522.0
522.4
18.9
1.9
17.0
3.0
3.0
Estimate change
TP change
Rating change
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 6129 1526
Subham Banka
(Subham.Banka@MotilalOswal.com); +91 22 6129 1567
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.