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Research
IndusInd Bank - Event Update - Nirmal Bang
Posted On : 2012-12-05 19:46:27( TIMEZONE : IST )
We had initiated coverage on IndusInd Bank on August 8, 2012 at Rs.327. Our target price of Rs.413 has been achieved. Considering the consistency in growth backed by strong asset quality and the fact that the Bank is adequately funded to pursue the growth prospects going forward, we upgrade the share price to Rs.480.
Investment Rationale
Adequately funded to fuel future growth: The Bank has successfully completed the QIP process at a price of Rs.384 per share, aggregating Rs.2000.6 crore. As a result of the QIP, the equity has been diluted by ~11 per cent. The Return on Equity ratio is expected to take a temporary knock of around 150 bps, however, this capital is necessary to fund the future growth avenues. The Bank had concluded a similar exercise in September 2010 by issuing shares(to QIBs) at a price of Rs.234.5 per share.
Reduction in promoter holding: As a result of the QIP, the promoter holding in the Bank has reduced from 19.4 per cent to 17.4 per cent. This move is in-line with the Central Bank's provision to reduce the promoter holding in the Bank.
Expansion strategy on track: IndusInd Bank would continue to expand as per the planned phase, the target is to touch a figure of 500 branches by March 2013. The present figure stands at 441. Despite this, the Cost/Income ratio has improved to 49.4 per cent compared to 49.87 per cent during the previous quarter.
Asset quality continues to remain steady amidst strong headwinds: The asset quality of the Bank continues to remain strong with gross NPAs at 1.03 per cent and net NPAs at 0.29 per cent for Q2FY'13. The Provision Coverage Ratio (PCR) stood at 72 per cent.
Valuation & Recommendation
We expect IndusInd Bank to post a net profit of Rs.1110 crore on Net Interest Income of Rs.2225 crore in FY'13E. We expect the Bank to clock a net profit of Rs.1335 crore on Net Interest Income of Rs.2820 crore for FY'14E. This translates into an EPS of Rs.25.6 for FY'14E. We continue to value the stock at 3x FY'14E adj. book value (of Rs.160.5) to arrive at a price target of Rs.480 over the next 6 months.
