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IndusInd Bank
IndusInd remains vulnerable to the CV cycle. Though the dependence on CV
lending has shrunk to ~21% from highs of 38%, the business still remains the pivot
for some of its other corporate and retail lending franchises. Also, current valuations
capture blue-sky credit cost assumptions, which will be tested if the CV cycle
softens. That said, we do not believe that the CV cycle is at risk in the short term,
given the strength in the economy and continued investment in roads.
Execution on improving branch productivity. IndusInd’s ROA assumptions factor
in a significant CASA ratio improvement, which is dependent on improved branch
productivity. The new management has executed very well so far, but the risk is that
they may hit bedrock sooner than anticipated, i.e., the easy part has been done and
the remaining branches are chronically inefficient. We do not think that is the case,
but it’s a risk that bears monitoring.
Promoter dilution. The existing promoters of the bank have committed to diluting
below 10% from the existing ~20%.That is difficult to achieve by pure diltuion (at 3x
PB, it would involve tripling the existing capital base), so the only two options are a
direct placement or an acquisition - the latter, we think, could be a potential negative
as acquisitions in India tend to be very expensive.
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