IndusInd Bank - Q3FY21 results - YES SECURITIES

Mr. Rajiv Mehta, Lead Analyst - Institutional Equities, YES SECURITIES

Improving confidence around deposit franchise and credit cost trajectory

IIB Q3 FY21 earnings missed expectation on conservative provisioning and lower-than-estimated fee and treasury income. Loan growth of 3% qoq driven by revival in consumer finance segment (barring CV and LAP, most products recorded growth uptick) was in-line with expectations, while strong and granular deposit growth continue to surprise (5% qoq - CASA sustained at 40%). Despite funding cost benefits, the NIM was stable on account of interest reversals on proforma slippages. Overall asset quality performance was resilient with proforma slippages at Rs25bn (1.2% of adv.) and invoked restructuring at Rs12.5bn (60bps). Collection efficiency in the perceived vulnerable portfolios of Microfinance, Vehicle Finance and Gems & Jewellary has demonstrated encouraging recovery in recent months. Many of the weak accounts in Microfinance and Vehicle Finance portfolios slipped in Q3 (formed 40% of proforma slippages) and some more could slip in the current quarter. In other retail products, the overdues buckets have been coming down. The bank is carrying significant provisions on the recognized stress - 85% on reported GNPLs, 62% on proforma slippages and 32% on restructured portfolio, and in addition has provisions of 25-30 bps. In all likelihood, Q4 should be the last quarter of heady provisions.

We raise ABV estimates by 2-3% assuming better-than-earlier growth and credit cost outcomes. We believe that RoA delivery in FY22/23 could positively surprise on the current consensus estimates, and this could come from a strong recovery in vehicle finance (29% of adv.) and Microfinance (11%) portfolios. Based on increased confidence around the deposits franchise and credit cost trajectory, we upgrade rating to BUY (from ADD) and raise 12m PT to Rs1,070.

Key Call Takeaways

Guidance (medium to long term):

- Loan mix: retail (55-60%) and wholesale (38-45%).
- PPoP to be >5%, NIMs within 415-425bps and RoA within 1.4-1.7%.
- Remain conservative on credit cost (shall provide in Q4FY21 as well).

CV portfolio:

- Share of performa slippages and restructurings stood at Rs502crs and restructurings of Rs10.2bn.
- On demand side, CV segment is ridden with overcapacity currently, shall normalise in near term.
- Disbursements barring CV portfolio at pre-covid levels. Stress largely evident in HCV and MHCV.
- Having CE of 96.9% and expect to improve further.

Restructurings / Asset quality / MFI stress:

- DCCO extension in real estate is done selectively for 4-5 projects to the tune of single digit of residential portfolio.

- Break-up of proforma slippages (Rs25bn): vehicle and MFI piece at 20% each, secured retail 15%, unsecured retail 30% and corporate 15%.

- Break-up of restructuring (60 bps of adv.): Vehicle 30%, non-vehicle 13%, balance is Corporate, no restructurings done in MFI portfolio.

- Stress in MFI business at 2% only. Assam having exposure of Rs45crs (already provided) and WB exposure is at 13% (ticket sizes are much lower). Issue is limited to few districts in WB and not WB entirely.

- Retail overdue buckets have come off dramatically.

- Recovered Rs210crs in Q2FY21, working on 3-4 accounts (including IL&FS) and expect recoveries to come in Q4. Have no exposure in Dewan HF, already sold off.

Advances / Disbursements:

- Sanctions and disbursements under ECLGS at Rs44bn and Rs29bn respectively. Pick-up is very slow in ECLGS.

- Corporate exposure is giving a lot of confidence, concentrated towards supply chains, logistics, working capital and gems & Jewellery. Most of the stress have been taken up in restructurings. 66bps already invoked and 120bps is pending approvals.

Shares of INDUSIND BANK LTD. was last trading in BSE at Rs.846.25 as compared to the previous close of Rs. 802.6. The total number of shares traded during the day was 640391 in over 16920 trades.

The stock hit an intraday high of Rs. 860.5 and intraday low of 816.7. The net turnover during the day was Rs. 538725800.

Source : Equity Bulls

Keywords