Maintain REDUCE on IndusInd Bank - Portfolio rejigging impairing growth - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

IndusInd Bank's (IIB) 4QFY21 operating performance was above our expectations (PPOP growth of 8% YoY), marred by higher-than-expected provisions. While the bank continues to gain traction on deposits mobilisation (27% YoY), it seems to be conservative on assets mobilisation (loan growth of 3% YoY) with greater focus on portfolio re-jigging (granularisation of corporate portfolio). On the asset quality front, CFD witnessed high slippages (5.2%, annualised) along with higher share in the restructured pool (~80%), while the "net slippages" for CCB were relatively muted (1.5% annualised). The strategic priorities in terms of asset mobilisation, along with elevated credit costs, are likely to further prolong ROE normalisation. We reduce our FY22/FY23 EPS by 1.1/5% to factor in lower loan growth and higher credit costs. Maintain REDUCE with revised TP of INR735.

Core fee income, CoF drive PPOP beat: IIB reported better-than-expected PPOP growth of 8% YoY, driven primarily by lowering cost of funds (4.54%) and core fee income growth (9% YoY). Yields on CCB portfolio seem to have bottomed out, as portfolio rationalisation (large corporate portfolio down by-11% YoY) is nearing completion, as per management. CFD portfolio also registered muted growth of 5% YoY despite pick-up in economic activity.

Asset quality - CFD portfolio surprises negatively; CCB portfolio volatile: CFD portfolio's asset quality surprised negatively with gross slippages at 5.2% (annualised), along with majority share (~80%) in the restructured pool. CVs, two wheelers, and LAP seem to be major contributors with GNPA >3%. Asset quality on the CCB portfolio remained volatile with gross slippages at~10%, although a substantial portion was upgraded during the quarter.

Asset growth becoming a concern; maintain REDUCE: With~16% of assets as cash balances, IIB seems to be sub-optimally utilising its balance sheet (3% YoY loan growth), leading to impact on NIMs and concerns on earnings growth. With the onset of the second wave of the pandemic, loan growth is likely to get prolonged, which along with credit costs normalisation, is likely to lead to a longer wait on ROE normalisation. Maintain REDUCE.

Shares of INDUSIND BANK LTD. was last trading in BSE at Rs.910.15 as compared to the previous close of Rs. 913.95. The total number of shares traded during the day was 431600 in over 11993 trades.

The stock hit an intraday high of Rs. 934.5 and intraday low of 906. The net turnover during the day was Rs. 398075010.

Source : Equity Bulls

Keywords