Indusind Bank - Q3FY14 Result Update - Sushil Finance

Indusind Bank Ltd. (IIB) has reported good set of numbers for the quarter ended December'13 bearing slight uptick in NPA's. We attended the conference call of the company and following are the key highlights of the results.

Key Highlights of Q3FY14 results

- Healthy advances growth (~24% YoY) led to strong growth in NII which grew by ~26% YoY & 4% QoQ to Rs.7.3 bn. Advances growth was result of robust growth in corporate loan book which grew by 34% YoY whereas consumer finance grew at a moderate pace of ~14% YoY on back of flattish growth in CV segment. Corp/Retail loan book stood at 53:47. CASA improved marginally to 32.2% (Q2-31.8%) majorly due to rise in SA (~50% YoY & 8% QoQ growth).

- NIM's were better than expected at 3.65% (flat sequentially) on back of repricing of advances & better management of COF. Higher yields on advances were outcome of pure repricing and not because of any change in rating mix of corporate book. Healthy NII growth, Stable NIM's, Strong Core-fee income growth (~30% YoY) coupled with cost optimization led to robust growth in PPP which grew by ~37% YoY.

- Asset quality deteriorated slightly with GNPA inching higher to 1.18% (Q2-1.11%) while NNPA came in at 0.31% (Q2 - 0.22%). Credit Cost came in at 12 bps which is likely to be below 55 bps in FY14 (9MFY14 - 38 bps). Restructured book stood flat QoQ at 0.31% while coverage ratio stood at 74% (Q2 - 80%).

- Management Guidance: 1) NIMs likely to remain stable with upward bias due to (a) Repricing of advances (b) Benign Cost of funds led by judicious mix (c) Asset mix turning back to 50:50. 2) C/I ratio improved slightly to 46.5% which is expected to remain stable with medium term improvement backed by more number of new branches becoming profitable and completion of major capex towards technology. 3) Bank witnessing some pressure in CV segment (~20% of book) & expect major revival post elections i.e.Sept'14. However other segments such as 2W, PV and LAP growing well thus compensating lull growth in CV side. Also not expecting any major incremental slippages from CV segment in coming quarters & likely peaking out over the next 1-2 quarters. 4) No chunky accounts in NPAs and no major accounts in restructuring pipeline.

OUTLOOK & VALUATION

Despite of the gloom economic scenario, IIB has reported good set of numbers in last quarter. Strong advances growth in spite of flattish growth in CV segment demonstrates management capabilities of maintaining high advances growth. Judicious management of COF coupled with improving CASA has helped IIB to improve its margins which we expect to remain stable over the next few quarters. Lower corporate bond exposure along with higher focus on core-fee income generation offers further impetus to profit growth. Minimal exposure to stress sectors & lower restructuring book is likely to keep asset quality intact. Hence considering the above investment arguments & strong growth prospects, we recommend 'HOLD' on the stock with a price target of Rs.475.

Source : Equity Bulls

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