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Buy IndusInd Bank; target of Rs 2076: Motilal Oswal

January 12
19:42 2018

Motilal Oswal‘s research report on IndusInd Bank

IndusInd Bank’s (IIB) 3QFY18 PAT grew 25% YoY (in-line) to INR9.4b. NII grew 20% YoY, led by robust advances growth of 25% YoY, even as calculated NIM shrunk 15bp YoY (reported NIM was flat YoY at 3.99%). Total income grew 18.7% YoY due to relatively low other income growth, as treasury gains were muted with increasing yields. However, controlled opex growth of 15% YoY (CI ratio declined 150bp YoY to 46%) led to PPoP growth of 2%/22% QoQ/YoY. Robust advances growth (25% YoY) was driven by 26% YoY corporate book growth; retail book grew 24% YoY, led by healthy growth in tractors (+42% YoY), credit cards (+55% YoY) and equipment finance (+29% YoY). Retail book stood at 41.3% of advances. GNPA/NNPA increased 11%/10% QoQ to INR15b/5.9b; however, in percentage terms, GNPA/NNPA increased 8bp/2bp QoQ to 1.16%/0.46%, as the bank utilized INR700m of floating provisions created in 1QFY18 to improve PCR to 60.5%. Slippages moderated to 1.6% (annualized) from 2% in the previous quarter.  Other highlights: (1) Robust CASA accretion continued, with 68% SA growth and 42% CASA growth (CASA ratio at 42.9%). (2) CET1/Tier 1 ratio stood at 14.07%/15.83%. (3) The bank is yet to receive FY17 divergence numbers from the RBI, as the audit has been completed at the end of Dec ’17.

Outlook

Valuation and view: IIB’s key focus is to scale up on its retail operations, led by a higher share of non-vehicle retail loans by FY20. The bank is targeting 25-30% loan growth, driven by continued branch expansion (by 800) and strong customer acquisition (+2x to 20m). A merger with BHAFIN will strengthen the bank’s liability profile and further boost return ratios. Maintain Buy with a revised TP of INR2,076 (4.0x Dec’19 BV v/s earlier TP of INR2,000 based on 4.0x Sep’19E BV).

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