IndusInd Bank Q4FY17: Motial Oswal maintain 'Buy' for a target implying 19% upside

Motilal Oswal | July 25, 2012, midnight

One-off provision mars strong operating performance

- IndusInd Bank’s (IIB) 4QFY17 PAT grew 21% YoY (in-line) to INR7.5b. Provisions were elevated at INR4.3b as they included one-off amount of INR1.22b on a bridge loan for a cement M&A transaction (account remains standard), where the receivable is in June (likely to get reversed in 1QFY18). Adjusted for this, PAT grew 34% YoY (9% beat). For FY17, PAT growth was healthy at 30% YoY.

- NII grew 31% YoY, led by strong loan growth (+28% YoY) and 6bp YoY improvement in NIM. Coupled with strong fee income performance (+29/13% YoY/QoQ) and controlled opex (+27% YoY), IIB reported impressive core PPoP growth of 34% YoY. For FY17, NIMs have improved 15bp YoY to 4%.

- Both corporate (+30% YoY) and consumer (+28% YoY) loans exhibited robust growth. IIB compensated for lower yet healthy growth in vehicle finance (+20% YoY) with strong growth of ~40% YoY in retail non-vehicle loans.

- Led by robust SA mobilization (+57/7% YoY/QoQ), CASA deposits grew 42% YoY (CASA ratio stable at 37%). The bank retained 35% of CASA accumulated during demon, and incremental growth was driven by new-to-bank customers.

- Slippages in CCB increased more than 4x to INR4.57b. As a result, CCB GNPAs increased 15% in absolute terms. Asset quality in CFD was largely stable.

- 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 branches addition) and strong customer acquisition (2x increase to 20m). Strong core profitability (3% of avg. assets v/s private banks’ avg. of 2.5% and HDFCB’s 2.7%), an improving CASA ratio (best among mid-sized private banks) and healthy return ratios (RoA of 1.9%+ and RoE of 16-18%) are the key positives. We upgrade estimates by 4-5% to account for higher growth. Maintain Buy with a target price of INR1,700 (3.8x FY19 BV).

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