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IndusInd Bank
Key highlights of 3QFY11 and what can be expected for the rest of FY11
�� Loan book grew by 8% q-q and 32% y-y in 3QFY11, backed by a deposit growth of
24% y-y . CASA ratio increased to 26.8%, compared to 25.4% in 2QFY11. The
core NIM expanded to 3.61% on the back an expanding LDR (which increased
from 75% in 2QFY11 to 82% in 3QFY11). Net-interest income grew by an
impressive 10.1% q-q and 52.7% y-y. Non-interest income increased 11.9% q-q
and 68.9% y-y. GNPLs increased 7% sequentially and 19% y-y – GNPL ratio
closed at 1.21%. NNPL ratio closed at 0.36% on the back of a core provision cover
of 70%. Loan loss provisions for 3QFY11 were at 0.18% of average loans.
We believe earnings momentum for the bank will continue. As highlighted in our note,
“CV business update”, dated 24 December 2010, and subsequently on 11 January
2011 in “Did you miss the party?’, our discussions with IndusInd indicate that CV
(commercial vehicles) and car volumes are tracking well ahead of its projections and we
expect the consumer-business division (CBD) to register y-y growth of 30% in FY11
and in the range of 22% for FY12. Management guides the bank’s portfolio yield at 15-
16%, and our checks with other major vehicle financiers confirm that IndusInd is
unlikely to sacrifice margins in its core markets. While some CV financiers indicate a
relative slowdown in the CV cycle over the next few months at the sector level (partly
due to the high base of 2HFY10 and emission-related model changes, which have
resulted in unit-price increases), we see no significant risk to established players like
IndusInd. We see no significant risk to our projected earnings momentum for IIB. Also
we believe the recent concerns on the core management team selling of their stakes
are overdone. The stock has hit the FII limit of 74% and this will act as a drag on its
market performance in the near term, until this issue is worked around.
What the bank needs to achieve in 4QFY11 to meet our expectations
Loans of INR15b will have to be disbursed in 4QFY11 to meet our loan growth
expectation of 28.9% for FY11. We are keeping NIMs flat at 3.6% level in 4QFY11. We
need to bear in mind the higher incidence of priority sector loans in 4Q (which should
drag loan yields down) and a further pass-through of higher funding costs. We are
factoring in LLPs of 96bp for 4QFY11.
What to expect in FY12
We are budgeting for loan growth of 25%, NIM of 3.6%, core fee income growth of 29%
– leading to a EPS growth of 21%. Our loan-loss provisions stay in the range of 65-
70bp for FY12. We are factoring in a cost-income ratio of 48% for FY12.
Valuation: We have cut our TP to INR260 (from INR275), implying a FY12E P/BV of
2.9x (from 3.0x earlier). The stock trades at 2.4x our FY12E adjusted BV for adjusted
ROE of 17%. Our TP is based on a three-stage residual income model, which assumes
a risk-free rate of 8.25%, equity risk premium of 6%, terminal growth rate of 4% and
beta of 1.1. Key risks to TP are: higher-than-expected NIM compression and LLPs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IndusInd Bank
Key highlights of 3QFY11 and what can be expected for the rest of FY11
�� Loan book grew by 8% q-q and 32% y-y in 3QFY11, backed by a deposit growth of
24% y-y . CASA ratio increased to 26.8%, compared to 25.4% in 2QFY11. The
core NIM expanded to 3.61% on the back an expanding LDR (which increased
from 75% in 2QFY11 to 82% in 3QFY11). Net-interest income grew by an
impressive 10.1% q-q and 52.7% y-y. Non-interest income increased 11.9% q-q
and 68.9% y-y. GNPLs increased 7% sequentially and 19% y-y – GNPL ratio
closed at 1.21%. NNPL ratio closed at 0.36% on the back of a core provision cover
of 70%. Loan loss provisions for 3QFY11 were at 0.18% of average loans.
We believe earnings momentum for the bank will continue. As highlighted in our note,
“CV business update”, dated 24 December 2010, and subsequently on 11 January
2011 in “Did you miss the party?’, our discussions with IndusInd indicate that CV
(commercial vehicles) and car volumes are tracking well ahead of its projections and we
expect the consumer-business division (CBD) to register y-y growth of 30% in FY11
and in the range of 22% for FY12. Management guides the bank’s portfolio yield at 15-
16%, and our checks with other major vehicle financiers confirm that IndusInd is
unlikely to sacrifice margins in its core markets. While some CV financiers indicate a
relative slowdown in the CV cycle over the next few months at the sector level (partly
due to the high base of 2HFY10 and emission-related model changes, which have
resulted in unit-price increases), we see no significant risk to established players like
IndusInd. We see no significant risk to our projected earnings momentum for IIB. Also
we believe the recent concerns on the core management team selling of their stakes
are overdone. The stock has hit the FII limit of 74% and this will act as a drag on its
market performance in the near term, until this issue is worked around.
What the bank needs to achieve in 4QFY11 to meet our expectations
Loans of INR15b will have to be disbursed in 4QFY11 to meet our loan growth
expectation of 28.9% for FY11. We are keeping NIMs flat at 3.6% level in 4QFY11. We
need to bear in mind the higher incidence of priority sector loans in 4Q (which should
drag loan yields down) and a further pass-through of higher funding costs. We are
factoring in LLPs of 96bp for 4QFY11.
What to expect in FY12
We are budgeting for loan growth of 25%, NIM of 3.6%, core fee income growth of 29%
– leading to a EPS growth of 21%. Our loan-loss provisions stay in the range of 65-
70bp for FY12. We are factoring in a cost-income ratio of 48% for FY12.
Valuation: We have cut our TP to INR260 (from INR275), implying a FY12E P/BV of
2.9x (from 3.0x earlier). The stock trades at 2.4x our FY12E adjusted BV for adjusted
ROE of 17%. Our TP is based on a three-stage residual income model, which assumes
a risk-free rate of 8.25%, equity risk premium of 6%, terminal growth rate of 4% and
beta of 1.1. Key risks to TP are: higher-than-expected NIM compression and LLPs.
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