IndusInd Bank - Well-rounded performance on all fronts - 3QFY13 Results Review - Antique

IndusInd Bank (IIB) reported one more quarter of superior performance with earnings at INR2.67bn, in line with our estimates of INR2.67bn. Operating profits were driven by stellar margins (Increased 21bps QoQ) and continued traction in non-fund income. Stable asset quality, continued traction in saving deposits franchise, and management commentary on lower than anticipated credit cost during FY13e (revised guidance to 50bps vs. 65bps earlier) were the key positives that emerged during the results.

Momentum in loan growth continues; likely to remain at 25-30% levels for FY13e

Loan growth for the bank continued to remain robust at 31% YoY, driven by consumer finance division (38% YoY) and corporate loans (24% YoY). Overall, loan mix remains fairly balanced between consumer finance division and corporate banking division (51:49). Consumer finance division for the bank continued to remain in sweet spot with continued traction in UVs, cars, CVs and LAP segments. Going forward, management is guiding loan growth to remain at 25-30% for FY13e.

Asset quality remains resilient, credit cost to remain at 50bps for FY13e

Asset quality ratios for the bank continued to remain stable with GNPA and NNPA at 0.99% and 0.30%, respectively. Annualised credit cost for the bank came in at 67bps as the bank recognised its exposure of INR1bn to Deccan Chronicle exposure as NPA. Despite the same, management expects credit cost to remain at 50bps for FY13e (vs. earlier guidance of 65bps). Restructured book for the bank marginally increased to 0.26% for 3QFY13, as the bank restructured two non bilateral accounts which were part of consortium lending.

CASA expansion on track, margins to expand by 30-40bps over FY14e

Reported margins for the bank expanded by 21bps on a sequential basis to 3.46% due to benefits from reduction in cost of funds. CASA ratio for the bank continued to remain healthy at 10% QoQ to 28.7%, on account of strong traction in saving deposits (16% QoQ). During the quarter, IIB garnered SA through mobilisation of high-value retail savings accounts as well as ramp-up government business segment. Momentum in customer acquisition continued with the bank has adding 140,000 saving deposit customers during 3QFY13 (vs. 126,000 in 2QFY13). Going forward, management expects sustainable growth in saving deposit accretion by adding INR10-12bn per quarter and continues to maintain its guidance on CASA ratio at +34% levels by FY14e. This is likely to be driven by cross-selling a wider range of products to customers through the branch network. Management also seems to be confident of maintaining margins at 3.3-3.4% levels for FY13e.

Valuation and outlook

We believe that IIB is uniquely positioned in a declining interest rate scenario given the large proportion of fixed rate loan book which will enable the bank to expand margins in complete contrast to the rest of the sector. Further, on the back of positive management commentary on lower credit cost and faster than anticipated improvement in margin profile, we increase our target price to INR508/share (3x FY14e P/B and 18x FY14e P/E), which gives 15% upside at current levels. Hence, we reiterate a BUY.

Source : Equity Bulls

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