Visit http://indiaer.blogspot.com/ for complete details Near-term growth priced -in
For the quarter ended June 2010, IndusInd Bank reported net profit of Rs.
1.2 bn, indicating robust growth of 37.1% yoy. This is attributable to a
sharp rise in its net interest income (NII), which grew 76.7% yoy to Rs. 3.0
bn in Q1'11, as the Bank's net interest margin (NIM) rose sharply from
2.45% in Q1'10 to 3.32% in Q1'11. There was an improvement in the asset
quality of the Bank as indicated by its gross NPA ratio, which declined from
1.46% in Q1’10 to 1.26% in Q1’11. The Bank's CASA ratio increased from
20.2% in Q1'10 to 24.3% in Q1'11. However, we remain concerned about
the Bank’s CASA ratio, which is still low by industry standards. We believe
the market has factored in all the positives and therefore, we do not
foresee any significant upside in the share price in the near term. Our
valuation model indicates a fair value estimate of Rs. 294, implying a
limited upside potential of 8.8% from the current market price (CMP) of Rs.
270.3. Thus, we give a Hold rating to the stock.
Margins to improve: The NIM rose from 2.45% in Q1'10 to 3.32% in
Q1'11, since the yield on advances declined by 1.19% yoy, whereas the
cost of deposits dipped at a faster pace of 1.67% yoy. The Bank's CASA
ratio increased from 20.2% in Q1'10 to 24.3% in Q1'11 as the Bank opened
44 branches between Q1'10 and Q1'11; this took its branch network to a
total of 224 as of June 30, 2010. We expect the CASA ratio to improve
further in the coming quarters as the Bank is looking at expanding its
presence in the Retail space by setting up 127 branches during the current
financial year and the Bank aims to have a branch network of 700 in three
years from now.
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