IndusInd Bank - Q4FY22 Result Update - Strong earnings performance - BUY

Mr. Gaurav Jani - Research Analyst at Prabhudas Lilladher.

Quick Pointers:

- Good quarter with PAT beat of 17%; all parameters were ahead of estimates.

- Credit momentum could sustain with CD ratio guided between 88-92%.

IIB's earnings at Rs13.6bn (PLe: Rs11.7bn) were a beat to estimates driven by higher loan growth of 12.4% YoY and the resultant fee income, better NII and lower provisions. While gross slippages were a bit higher at 3.7% of loans (bulk from retail), healthier recoveries as a result of enhancing collection efficiency across segments drove sequential asset quality improvement. We believe recovery trends could sustain while slippage run-rate should moderate in-line with management guidance as bulk of the stress has already been recognized. The telecom exposure has been fully provided for while real estate has been performing well. With a stronger balance sheet focus is back on credit growth. We expect a loan CAGR of ~15% over FY22-24E with declining provision costs, while expanding LDRs over the same time frame might drive uptick in margins. RoE may scale up from 10% in FY22 to 15% in FY24E. With most of the fundamental issues being addressed, valuation discount of IIB to its larger peers should narrow. We retain 'BUY' with TP of Rs1,297 based on 1.8x FY24E ABV.

All round performance: NII growth of 12.7% YoY/5% QoQ was better, aided by loan growth of 12.4% YoY across segments. Tailwinds from lower CoF and stronger disbursals towards higher yielding segments, led to margin expansion of 10bps QoQ. Fee income was better as bank saw better credit off-take although higher opex led to lower PPOP growth of 8.7% YoY. Due to strong recoveries, asset quality improved with GNPA/NNPA being lower at 2.3%/0.6% (PLe 3%/0.9%). Led by better asset quality, provisions decreased QoQ leading to PAT beating estimates by 17%.

Business momentum to continue: As MFI issues are being resolved, disbursements trend are ameliorating. VF is seeing robust traction despite fuel cost pressures, barring 2W/3W. Business Banking to pick-up as pricing pressure subsides. Corporate might gain traction due to increase in levels of WC utilization. Management continues to guide for a loan CAGR 15-18% over FY21-23. On deposits, CASA grew by 17% YoY/4.5% QoQ with CASA ratio improving by 100bps YoY to 43%.

Asset quality pressures easing: Bank reported slippages of Rs20.9bn [Ple: Rs21.7bn] with 83% from consumer segment (MFI 40%). Improvement in collection efficiency across segments led to strong recoveries which coupled with elevated w/off led to a QoQ decline in GNPA to 2.3%. Bank holds a 140bps of contingent provisions and a PCR 72%. Restructuring book at 2.6% remains at manageable levels. As recoveries from restructuring book improves, credit cost would trend to 120-150bps.

Return ratios to move high post credit cost normalization: We believe; ROEs could move towards 15% over FY22-24E driven by enhancing share of higher yielding segments (may lead to better NIM) and reduction in credit costs by 100bps from current levels of ~3%. Stock trades at 1.4x FY24 ABV and it warrants a re-rating due to its stronger balance sheet.

Shares of IndusInd Bank Limited was last trading in BSE at Rs. 978.20 as compared to the previous close of Rs. 987.45. The total number of shares traded during the day was 109413 in over 4448 trades.

The stock hit an intraday high of Rs. 1009.50 and intraday low of 975.50. The net turnover during the day was Rs. 109000783.00.

Source : Equity Bulls

Keywords

IndusIndBank INE095A01012 Q4FY22 ResultUpdate PrabhudasLilladher