Analysts retain positive stance on IndusInd Bank, expect stock to return up to 21% post stable Q1
Private sector lender IndusInd Bank reported better-than-expected profit growth of 23 percent year-on-year with stable asset quality for the quarter ended June 2018.
Profit in Q1 increased to Rs 1,035.7 crore from Rs 836.5 crore in same period last year and net interest income rose more than 19 percent year-on-year to Rs 2,122.4 crore.
For Q1 FY18-19, a Reuters poll had projected net profit at Rs 1,014.7 crore and NII at Rs 2,128 crore.
Romesh Sobti, CEO and MD of the bank, said that overall, asset quality showed handsome improvement and the bank added one million customers during the quarter.
“Overall, profit would have been higher but for the treasury book, where there was a mark-to-market loss of Rs 86 crore. We have made full provisions for the same,” Sobti said.
On the asset quality front, the net non-performing assets (NPAs) ratio has been unchanged at 0.51 percent quarter on quarter in Q1 while gross NPAs were lower at 1.15 percent against 1.17 percent QoQ.
Provisions for bad loans remained at elevated levels, rising Rs 350 crore during quarter from Rs 310 crore in same period last year and Rs 335.5 crore in previous quarter.
Non-interest income grew 12 percent to Rs 1,301.6 crore as compared to Rs 1,167 crore in Q1FY18.
Majority of brokerage houses retained their positive stance on the stock, citing stable earnings growth in Q1 and betting on likely sustaining growth ahead.
The stock price corrected a percent on top of a percent loss in previous session, indicating that the results already priced in, they said.
In fact the stock price surged 17 percent in the current year, in addition to 49 percent upside in previous year.
Here are 10 brokerage houses with their view, ratings and target prices IndusInd Bank:
CLSA: Buy | Target – Raised to Rs 2,350 | Return – 21.44%
While retaining Buy call with increased target price at Rs 2,350 (from Rs 2,190), CLSA said it expects 25 percent CAGR in profit over FY18-21.
IndusInd disappointed by NII growth of 20 percent. NII was stable for 3 quarters despite a pick-up in loan growth.
Pick-up in topline will be key to growth in earnings and ISSL acquisition can lift growth in float deposits. Bharat Financial & ISSL acquisitions should be consummated by Q3.
Asset quality stable, but the risk is rising.
Jefferies: Hold | Target – Raised to Rs 1,815 | Return – (6.21%)
Jefferies has maintained Hold rating on the stock with increased target price at Rs 1,815 (from Rs 1,690).
Acquisition of Bharat Financial & ISSL will shift earnings trajectory, but increased riskiness. Jefferies incorporated Bharat Financial merger in Q3 versus Q2 earlier.
It has changed EPS estimates by -1.8/1.3/-0.6 percent for FY19/FY20/FY21 and expects 25.4 percent EPS CAGR over FY18-21.
Macquarie: Outperform | Target – Rs 2,100 | Return – 8.52%
IndusInd has been demonstrating stability & pricing power and managing the margins well.
JPMorgan: Overweight | Target – Rs 1,975 | Return – 2.06%
Strong net income growth with underlying operating trends remained solid in Q1. The bank looks well positioned to deliver medium-term loan growth of 25 percent.
JPMorgan believes the Bharat Financial merger will be accretive to earnings.
Citi: Buy | Target – Rs 2,270 | Return – 17.31%
Loan growth was strong. There could be opportunity in NCLT refinancing.
IndusInd posted healthy CASA growth and asset quality was stable.
Edelweiss: Buy | Target – Rs 2,080 | Return – 7.49%
The bank is structurally poised to achieve Phase IV targets and achieve scale. Broad based growth momentum is suggesting secular growth trends.
Asset quality was stable and shift to better rated corporate sustained.
Axis Capital: Buy | Target – Rs 2,200 | Return – 13.69%
Growth in Q1 was strong with asset quality stable. Management continued to guide for a growth of 25-30 percent YoY.
The bank does not intend to raise capital in the near term given that it is adequately capitalised.
Anand Rathi: Buy | Target – Rs 2,248 | Return – 16.16%
Strong traction in IIB’s balance sheet continued. Anand Rathi noted better headline asset quality parameters and is sanguine about its loan-growth prospects over FY19-20.
The strategic Bharat Financial deal would be synergistic in the medium term. We maintain Buy recommendation.
UBS: Neutral | Target – Raised to Rs 2,060 | Return – 6.45%
IndusInd Bank reported in line results as rising rates curbed profitability. Sharp rise in cost of funds seem to have driven the margin dip.
Stable asset quality and steady earnings growth seem priced in.
Kotak Institutional Equities: Reduce | Target – Raised to Rs 1,900 | Return – (1.81%)
Kotak has maintained Reduce call on the stock as concern on net interest margin comes to the fore and expensive valuations underpinned the cautious stance.
Loan mix shift or Bharat Financial acquisition will ease pressure.
Near-term risks of Bharat Financial appeared to be low and the cycle is quite favourable.
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