IndusInd Bank - Upbeat on prospects; reiterate BUY - Antique

We believe that IndusInd Bank 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, the bank is likely to roll out significant new loan products (gold loans, LAP) which should ensure above average industry loan growth in a difficult environment. The bank has recently raised capital to the tune of INR20bn which should take care of its growth plans for the next 2-3 years. Hence, IndusInd Bank is our preferred pick in the banking sector. We continue to reiterate our BUY rating with a target price of INR500/share.

Key highlights

CASA expansion on track; management targeting 34% by FY14e

In regards to liability franchise, management highlighted that while the CA accretion continues to remain stable, the bank expects sustainable growth in saving deposit accretion by adding 45-50,000 saving account customers per month. The bank has also started targeting institutional savings deposits in an aggressive way and hopes to acquire some chunky savings deposits. Management has continued to maintain its guidance on CASA ratio of +34% levels by FY14e. This is likely to be driven by cross-selling a wider range of products to customers through the branch network.

Margins to expand 10-15bps over the next couple of quarters

IndusInd Bank is poised for an improvement in margins with reversal in interest rate cycle on the back of a large proportion of high yielding fixed loan book. Margins for the bank are likely to improve over the next couple of quarters on the back of: a) expected fall in interest rates on wholesale deposits; b) increasing proportion in CASA deposits; and c) easing deposit rate environment. Currently, 86% of retail loans are vehicle loans (almost entirely fixed rates); therefore, in a declining interest rate environment this augurs well for the bank's net interest margins; and higher margins will also provide a cushion to tide over any deterioration in asset quality. We are building in margins at 3.7% for FY14e.

Credit growth to remain at 25% over FY13-14e; LAP, gold loans to drive overall growth

The management is targeting a loan growth at 25-30% for FY13-14e, significantly above systemic growth of 16%, to be driven by consumer finance division and corporate banking. Management also highlighted that the bank is concentrating on increasing share of LAP to INR45-50bn by FY14e. While CV loans are a significant contributor, the expected rise in LAP is likely to offset any slowdown in the CV loan portfolio, thereby protecting overall asset yields.

Source : Equity Bulls

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