Buy IndusInd Bank; target of Rs 1400: Motilal Oswal

Trading Calls - Equity F&O

Motilal Oswal is bullish on IndusInd Bank recommended buy rating on the stock with a target price of Rs 1400 in its research report dated Novemer 02, 2021.

Broker Research

November 03, 2021 / 01:38 PM IST

HDFC Securities research report's outlook and valuations: 500bps growth outperformance over FY21-24E as compared to 250bps earlier). We roll over valuations to Sepemtember-23E and increase target multiples for most of the companies in our coverage universe. We remain broadly constructive across the sector and ahead of consensus on growth/EPS; our preferred picks are Infosys, HCLT, Mphasis and Zensar.”” title=”HDFC Securities research report’s outlook and valuations:  “The YTD EPS upgrades (consensus) have been led by mid-tiers such as Tata Elxis, Mindtree, Mastek, and Persistent Systems, ranging from 20-40 percent and, within tier 1, by Wipro (~15%). We expect the sector (coverage universe) to post 13 percent and 14.5 percent USD revenue/APAT CAGR over FY21-24E compared to 6.5/7.5 percent over the past five years. The mid-tier valuation premium relative to tier 1s may sustain, based on its relative outperformance (>500bps growth outperformance over FY21-24E as compared to 250bps earlier). We roll over valuations to Sepemtember-23E and increase target multiples for most of the companies in our coverage universe. We remain broadly constructive across the sector and ahead of consensus on growth/EPS; our preferred picks are Infosys, HCLT, Mphasis and Zensar.”” width=”100%” height=”auto” >

HDFC Securities research report’s outlook and valuations:  “The YTD EPS upgrades (consensus) have been led by mid-tiers such as Tata Elxis, Mindtree, Mastek, and Persistent Systems, ranging from 20-40 percent and, within tier 1, by Wipro (~15%). We expect the sector (coverage universe) to post 13 percent and 14.5 percent USD revenue/APAT CAGR over FY21-24E compared to 6.5/7.5 percent over the past five years. The mid-tier valuation premium relative to tier 1s may sustain, based on its relative outperformance (>500bps growth outperformance over FY21-24E as compared to 250bps earlier). We roll over valuations to Sepemtember-23E and increase target multiples for most of the companies in our coverage universe. We remain broadly constructive across the sector and ahead of consensus on growth/EPS; our preferred picks are Infosys, HCLT, Mphasis and Zensar.”

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Motilal Oswal’s research report on IndusInd Bank

IIB’s consistent efforts in strengthening its liability franchise have been yielding results. After witnessing a sharp run down in deposits over Mar’20, the management has increased its focus on garnering Retail deposits. The same has grown by 59% YoY in Sep’21, while the mix as per LCR disclosures rose 980bp YoY to 41%. Loan growth over the past few quarters have been modest due to a challenging business environment and weak demand as the Corporate book witnessed a decline over FY21. However, the bank is witnessing a healthy recovery as it reported a QoQ growth of ~5% over 2QFY22. An improving CV cycle/demand outlook would keep the momentum healthy. We expect 17% loan CAGR over FY21-24E. The overall risks to asset quality are diluting. While provisioning is likely to continue, as IIB would provide for MFI/restructuring and is looking to set up contingency for its IDEA exposure, we expect credit cost to moderate gradually to 1.8% by FY24E and GNPA/NNPA to moderate to 1.8%/0.5% by FY24E.

Outlook

The IIB stock has delivered a healthy (24%) return over the past two months, owing to abating concerns around asset quality and improving business/demand outlook. Asset quality pressure is likely to remain in the near term. However, healthy PCR at 72% and provisions buffer of 1.4% of loans provide comfort. We expect a RoA/RoE of 2.0%/16.7% in FY24E. We maintain our Buy rating with a TP of INR1,400/share (1.9x 1HFY24E ABV).

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