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On its way to match the best in class
The current and next quarter are likely to pose challenges in terms of margin maintenance as deposits reprice upwards and
lags in asset repricing. However, beyond 1Q FY12, things are likely to normalize with the upward trajectory of CASA and
NIM likely to resume.
About 10-15 bps of incremental margin expansion likely to come from its foray into unsecured products like credit cards.
Credit cards seen as completing the product offering rather than as a core business driver.
Vehicle finance book yields 16%. Of the vehicle portfolio of cINR110bn, approx INR25-30bn is financed through longterm
loans and the rest by CASA deposits.
The target is for fee income to grow faster than loan book growth. Investment banking is one of the key focus areas, where
they are targeting to increase revenue from current INR650m to INR2.5bn.
Goals for the next three years are: 4% NIM, RoA above 1.6%, 15x leverage, cost/income ratio at 45%, branch expansion
to 700 branches from 300 in March 2011.
Valuation and risks
IIB valuations have recently corrected from a peak of 19x FY12e EPS and 3.2x FY12e PB to its 5-year averages of 14x
and 2.3x, respectively. However, we remain confident the bank will be able to surprise positively on earnings growth.
With strong earnings momentum to continue, ROA should increase to 1.5% from 1.3% and ROE to 21% from 17%.
We value IIB using a weighted average combination of PE (75%), PB (15%), and economic profit model (EPM, 10%). We
expect PE and PB to rise to 24x and 3x, respectively.
Downside risks: Stability of the top management, growth and expansion targets not being met, higher than expected
slippages and credit costs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
On its way to match the best in class
The current and next quarter are likely to pose challenges in terms of margin maintenance as deposits reprice upwards and
lags in asset repricing. However, beyond 1Q FY12, things are likely to normalize with the upward trajectory of CASA and
NIM likely to resume.
About 10-15 bps of incremental margin expansion likely to come from its foray into unsecured products like credit cards.
Credit cards seen as completing the product offering rather than as a core business driver.
Vehicle finance book yields 16%. Of the vehicle portfolio of cINR110bn, approx INR25-30bn is financed through longterm
loans and the rest by CASA deposits.
The target is for fee income to grow faster than loan book growth. Investment banking is one of the key focus areas, where
they are targeting to increase revenue from current INR650m to INR2.5bn.
Goals for the next three years are: 4% NIM, RoA above 1.6%, 15x leverage, cost/income ratio at 45%, branch expansion
to 700 branches from 300 in March 2011.
Valuation and risks
IIB valuations have recently corrected from a peak of 19x FY12e EPS and 3.2x FY12e PB to its 5-year averages of 14x
and 2.3x, respectively. However, we remain confident the bank will be able to surprise positively on earnings growth.
With strong earnings momentum to continue, ROA should increase to 1.5% from 1.3% and ROE to 21% from 17%.
We value IIB using a weighted average combination of PE (75%), PB (15%), and economic profit model (EPM, 10%). We
expect PE and PB to rise to 24x and 3x, respectively.
Downside risks: Stability of the top management, growth and expansion targets not being met, higher than expected
slippages and credit costs.
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