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Research
IndusInd Bank - Too much optimism = little room for positive surprise; maintain Reduce - BRICS Research
Posted On : 2012-04-23 10:56:01( TIMEZONE : IST )
Too much optimism = little room for positive surprise
IndusInd Bank reported a robust quarter with PAT up 30% (6.4% ahead of estimate), 20% NII growth, and strong fee income growth of 60%. On an operating basis PAT was up 29% (3% ahead of estimates). While the bank is well on its way to meet its FY14 growth targets, the steep guidance leaves little headroom for regular positive surprises. Accordingly, current valuation at 3.0x forward book bakes in a much higher premium than we believe is reasonable. We retain our Reduce rating while upping the price target ro Rs.310 (from Rs.295).
Estimates move up. NIM may improve, given the fixed-rate high-yield book in a falling funding cost regime. However, this is likely to be offset by higher credit costs (normalised credit costs should be around 100 bps) as we pencil in total provision cost at 82 bps and 94 bps for FY13 and 14, respectively. PAT CAGR should be 24.3% over FY13-14. We up our EPS estimates by 3.5% and 1.6% to Rs.20.2 and Rs.25.8 for FY13 and 14, respectively.
Quarterly delivery remains strong. NIM came in at 3.29% (reversing the drop reported in Q3FY12) backed by a strong loan growth of 34%. However, net interest revenue growth of 33% (6% ahead of estimates) was partly offset by higher operating expenses (up 39%). Provisions remain benign (provisioning cost at 55 bps and flat qoq) - incidentally, this was true for all retail-asset-focused banks so far. On an operating basis, PAT was up 29% (3% ahead of estimates). CASA rose 80 bps to 27.3%. Slippages were at 1.3% on 12-month prior net advances. Gross and net NPA ratio improved further to 98 bps and 27 bps from 102 bps and 29 bps last quarter. Profitability profile was impressive with RoA at 1.6% and RoE at 20%.
Valuation - pricey. At 3.0x forward book, the market is paying a high premium for the steep FY14 guidance and (perhaps for) its love of retail focused banks in a challenging asset quality environment. While we do not foresee immediate earnings disappointment, a positive earnings surprise is likewise also unlikely. We value the stock at 2.7x forward book and 15.0x forward earnings with a target price of Rs.310.
