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IndusInd Bank, Get on board
Loan growth momentum and stable NIMs to continue
CASA progression on track; we expect 30% by FY12
Further ROA expansion from fee income streams
Trades at 2.4x FY12E adj BV for FY12E adj RoE of 18%
Earnings growth persists
We recently discussed the business outlook for IndusInd Bank (IIB) with
management and we reiterate our positive stance. We are fine-tuning our
expectations for FY12 and increasing our loan growth assumption from 26% to
28%, as we see no significant risk to the bank’s current growth momentum. Our
discussions indicate that commercial vehicle financing volumes are holding up
well and we expect the consumer business division to register y-y revenue
growth of 33% for FY11 and around 25% growth for FY12. IIB has increased its
lending rates by 225bp in the last two quarters, while its deposit rates
have gone up by 200bp. NIM for 3Q11 came in at 3.61% and we
anticipate no greater than 10bp margin compression over the next 2-3
quarters. Loan-loss provisions, which came in at 18bp for 3Q11, should
average around 73bp for FY11E and 66bp for FY12E. In summary, we
expect EPS growth of 21% for FY12. We expect ROA of 1.5% and
adjusted ROE of 17.8% for FY12.
CASA and ROA expansion
IndusInd closed 3Q11 with a CASA of 26.8% and we expect the bank to
continue to deliver on the current trajectory of a 1ppt increase in CASA
ratio per quarter. At this rate, CASA should hit the 30% range by FY12.
ROA was 1.5% as of 3Q11 and management is intent on deriving further
boosts to the ROA (from these levels) from fee income streams like
investment banking and forex-fee income streams.
Sector headwinds receding
Liquidity is easing in the sector and the deficit in the LAF window, which
peaked at 3.5% of net deposits in December 2010, declined to 1% of net
deposits in early March 2011. We expect this deficit to remain at 1% of
deposits in April, after a frictional uptick on advance-tax payments. While
higher-than-expected government borrowings in FY12 and uncertainty
around international oil prices are potential headwinds, IndusInd will be a
big beneficiary of a sector re-rating from current levels, given its earnings
momentum and management’s delivery.
Valuation: We are raising our TP to INR300 (from INR260), on 7-8%
increase in earnings estimates, implying a FY12E P/BV of 3.2x compared
to our earlier multiple of 2.9x. 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 are
higher-than-expected NIM compression and slower loan growth.
The Risk Experts
• Our starting point for this page is recognition of the macro
factors that can have a significant impact on stock-price
performance, sometimes independently of bottom-up
factors.
• With our Risk Expert page, we identify the key macro risks
that can impact stock performance.
• This analysis enhances the fundamental work laid out in
the rest of this report, giving investors yet another resource
to use in their decision-making process.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IndusInd Bank, Get on board
Loan growth momentum and stable NIMs to continue
CASA progression on track; we expect 30% by FY12
Further ROA expansion from fee income streams
Trades at 2.4x FY12E adj BV for FY12E adj RoE of 18%
Earnings growth persists
We recently discussed the business outlook for IndusInd Bank (IIB) with
management and we reiterate our positive stance. We are fine-tuning our
expectations for FY12 and increasing our loan growth assumption from 26% to
28%, as we see no significant risk to the bank’s current growth momentum. Our
discussions indicate that commercial vehicle financing volumes are holding up
well and we expect the consumer business division to register y-y revenue
growth of 33% for FY11 and around 25% growth for FY12. IIB has increased its
lending rates by 225bp in the last two quarters, while its deposit rates
have gone up by 200bp. NIM for 3Q11 came in at 3.61% and we
anticipate no greater than 10bp margin compression over the next 2-3
quarters. Loan-loss provisions, which came in at 18bp for 3Q11, should
average around 73bp for FY11E and 66bp for FY12E. In summary, we
expect EPS growth of 21% for FY12. We expect ROA of 1.5% and
adjusted ROE of 17.8% for FY12.
CASA and ROA expansion
IndusInd closed 3Q11 with a CASA of 26.8% and we expect the bank to
continue to deliver on the current trajectory of a 1ppt increase in CASA
ratio per quarter. At this rate, CASA should hit the 30% range by FY12.
ROA was 1.5% as of 3Q11 and management is intent on deriving further
boosts to the ROA (from these levels) from fee income streams like
investment banking and forex-fee income streams.
Sector headwinds receding
Liquidity is easing in the sector and the deficit in the LAF window, which
peaked at 3.5% of net deposits in December 2010, declined to 1% of net
deposits in early March 2011. We expect this deficit to remain at 1% of
deposits in April, after a frictional uptick on advance-tax payments. While
higher-than-expected government borrowings in FY12 and uncertainty
around international oil prices are potential headwinds, IndusInd will be a
big beneficiary of a sector re-rating from current levels, given its earnings
momentum and management’s delivery.
Valuation: We are raising our TP to INR300 (from INR260), on 7-8%
increase in earnings estimates, implying a FY12E P/BV of 3.2x compared
to our earlier multiple of 2.9x. 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 are
higher-than-expected NIM compression and slower loan growth.
The Risk Experts
• Our starting point for this page is recognition of the macro
factors that can have a significant impact on stock-price
performance, sometimes independently of bottom-up
factors.
• With our Risk Expert page, we identify the key macro risks
that can impact stock performance.
• This analysis enhances the fundamental work laid out in
the rest of this report, giving investors yet another resource
to use in their decision-making process.
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