IndusInd Bank - Trans Scan Securities

- The Hinduja Group-promoted IndusInd Bank has been one of the best performers in terms of business growth, superior asset quality, healthy margins and operating efficiency.

- The cost to income ratio for both the bank has reduced by 20-30% over four years to FY12 due to effective cost control mechanisms. It also increased the CASA ratio by 700-1000 basis points over the same period on the back of an expanding branch network.

- IndusInd Bank's loan asset portfolio is equally split between corporates and retail sectors. It has high exposure to consumer finance which traditionally has high delinquencies. But, close monitoring and effective risk management has helped it improve its asset quality over the years.

- The Bank is shielded against economic downturn due to the small size of its loan book. Higher growth of non-interest income compared to interest income imparts stability to revenue and helps to protect against profit fluctuations which are more often than not caused by changes in the interest rate regime.

- The Company raised Rs.2000Cr through the QIP route to gain comfort in its Tire-I capital and to ensure that its growth process remains unabated.

- IndusInd Bank has been allowed by the Reserve Bank of India (RBI) to increase its FII investment limit to 49%. However, the central bank asked the IndusInd bank to ensure that the aggregate foreign investment in the bank does not exceed 74%.

- Credo India Thematic Fund has hiked its stake in IndusInd Bank by picking up 28.6 lakh shares in the private sector lender for about Rs.119Cr. The shares were purchased on average price of Rs.415.50.

At the CMP Rs.429.80 (as on 18/12/2012), the stock is trading at an adjusted P/BV of 3.52x FY13E BV of Rs.122.14. We have valued the Bank on a conservative basis and recommend a BUY on the stock with a target price of Rs.470-475 in the short-to-medium term with an upside potential of 8-10% in the short-to-medium term from current levels.

Source : Equity Bulls

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