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A new management team led by Managing Director, Mr. Romesh
Sobti took charge of IndusInd Bank (IIB) in the year 2008. The team
made a huge impact in the first three years of their operation by
revamping the bank in terms of improving its earnings, improving
the productivity, healthy growth in the business coupled with
improving its asset quality. Overall, this team has been able to lay
a strong platform for the bank to be able to scale up their business
from hereon.
Investment Argument
Robust growth in business to continue
In the last two years, IIB’s business grew in line with the industry
growth rate. The total business of the bank grew at a healthy
CAGR of ~22% between FY08 to FY10. The advances grew by a
CAGR of ~26.7%, while the deposits grew at a CAGR of 18.5%
during the same period. While deposit growth was on the lower
side, CASA of IIB grew by a CAGR of 45.5% between FY08 to FY10
and the CASA ratio improved from 15.7% in FY08 to 23.7% in FY10.
We expect the improvement in CASA ratio to continue over the
next couple of years. We expect the business of IIB to grow at a
robust 28.7% between FY10 to FY13E.
Consistent improvement in NIM and RoAA
IIB’s Net Interest Margin (NIM) improved to 3.6% in Q3FY11 from
1.8% in Q3FY09. We expect the overall NIM to improve during the
current fiscal due to the growth in advances, improvement in
yields & control over cost due to increase in CASA. We expect the
NIM to move from ~3.2% in FY10 to ~3.8% in FY13E. The RoAA has
improved to 1.5% in the Q3FY11 against 0.7% in Q3FY09. We expect
the RoAA to improve from ~1.1% in FY10 to ~1.6% in FY13E and
RoAE to improve from 19.5% in FY10 to 20.7% in FY13E.
Asset quality under control
The gross NPA of IIB has decreased from 3.2% in Q1FY09 to ~1.2% in
Q3FY11. The net NPA has reduced from 7.2% in FY99 to 0.36% in
Q3FY11. IIB has also been able to meet the provision coverage
ratio of 70%. The restructure book of IIB at Rs.350 mn; lowest seen
in the industry & therefore we do not expect huge incremental
increase in NPA in IIB from this book.
Valuation
Currently at Rs.266, the stock is available at price to adj book
value (P/ABV) of ~2.4x of FY13E. We expect RoAE to improve from
~19.5% in FY10 to ~21% in FY13E and RoAA improve from 1.1% in
FY10 to 1.6% in FY13E. We value the bank’s business at 3x FY13E
P/ABV. We initiate coverage on the stock with a price target of
Rs.328, an upside of ~23% from the current market price
Investment Argument
Top management
turned around an
ailing bank
A new management team led by Managing Director, Mr. Romesh Sobti took charge of
IIB in the year 2008. Prior to this team from ABN AMRO, IIB was facing a number of
problems like poor asset quality, less visibility in the industry, poor quality of
earnings, etc. The team made a huge impact in the first three years of their operation
by revamping the bank in terms of improving its earnings, improving the productivity,
healthy growth in the business coupled with improving its asset quality. Overall, this
team has been able to lay a strong platform for the bank to be able to scale up their
business from hereon. IIB has been able to hold on the interest of the top
management by offering them lucrative ESOP’s which constituted ~7% of the total
equity capital as on Q3FY11.
Mr. Romesh Sobti
MD & CEO
Prior to IIB, Mr. Sobti was the Executive Vice President – Country
Executive, India and Head, UAE & Sub-Continent at ABN AMRO Bank N.V.
Mr. Sobti has been associated with ANZ Grindlays Bank Plc (now Standard
Chartered Bank) and State Bank of India in the past.
Mr. Paul Abraham
Chief Operating Officer
Before joining IIB, Mr. Abraham held the position of Managing Director,
ABN AMRO Central Enterprise Services (ACES).
Mr. Abraham started his career with ANZ Grindlays Bank (now Standard
Chartered Bank), way back in 1982.
Mr. K S Sridhar
Chief Risk Officer
Prior to IIB, Mr. Sridhar was handling bank-wide Risk Management at ABN
AMRO Bank N.V.
Mr. Sridhar was associated with State Bank of India at various levels prior
to joining ABN AMRO N.V.
Mr. Sumant Kathpalia
Head – Consumer Banking
Prior to joining IIB, Mr. Kathpalia was the Head – Consumer Banking at
ABN AMRO Bank N.V.
Mr. Kathpalia has had a vast variety of experience in consumer banking,
project management, credit cards, bancassurance, wealth management
and consumer finance.
Mr. Suhail Chander
Head – Corporate &
Commercial Banking
Prior to joining IIB, Mr. Chander held the position of Head, Consumer &
Commercial Banking, Singapore & Malaysia at ABN AMRO N.V.
Mr. Chander has wide experience of working in various geographical
locations in India and South-East Asia.
Mr. Ramesh Ganesan
Head – Transaction
Banking
Prior to joining IIB, Mr. Ganesan was the ED and Head Transaction
Banking at ABN AMRO Bank N.V.
Mr. Moses Harding
Head – Global Markets
Group
Prior to joining IIB, Mr. Harding, had an overseas stint during 2002-03
based out of London/Dubai focusing on Wealth Management business
covering all asset classes of global markets.
Mr. Suresh Pai
Head – Corporate Services
& Communications
Prior to joining IIB, Mr. Pai worked with Corporation Bank for 25 years
and was heading the zones like Delhi, Mumbai and Bangalore.
Mr. S V Parthasarathy
Head – Consumer Finance
Prior to joining IIB , Mr. Parthasarathy was associated with Ashok Leyland
Ltd. and held the position of ED, in charge of the Vehicle Finance
business in erstwhile ALFL.
Mr. Zubin Mody
Head – Human Resource
Prior to joining IIB, Mr. Mody was heading the HR function at ICICI
Lombard.
IIB has shown consistent growth in the recent past in terms of business, margins, cost
efficiency & better employee productivity. We believe that this consistency in the
overall performance of the bank is going to continue over the next couple of years.
The new management has been successful in reviving the financial health of IIB. Their
main focus was not only on the business & the margins, but also the profitability & the
quality of the assets.
This has now laid a strong base for the bank, enabling it to scale higher in terms of
scalability in business along with overall profitability. The bank is now looking for the
second phase of growth between FY11E to FY14E with an aim to improve the return
ratios, asset quality, margins, cost efficiency and employee productivity.
The overall business has grown at a CAGR of ~18% from FY06 to FY10. However, on a
quarterly basis, the business has grown at a Cumulative Quarterly Growth Rate (CQGR)
of 5.9% from Q1FY09 to Q3FY11. Deposits have grown by a CQGR of 5.4% from Q1FY09
to Q3FY11 and advances have grown by 6.5% from Q1FY09 to Q3FY11. Credit – deposit
ratio has improved from as low as ~69.7% in Q3FY09 to ~81.5% in Q3FY11, which has
led to strong topline growth from core fee income. The CASA on a CQGR basis has
grown by 9.9% from Q1FY09 to Q3FY11
Going forward, we expect the business growth to be higher than industry average,
mainly on account of the low base & focused management. The management, so far
had been trying to lay a foundation for the revival of IIB. This has been laid now and
thus we expect the focus of the management to shift towards the growth stage. We
expect the overall business of IIB to grow at a CAGR of 28.7% between FY10 to FY13E.
We expect the deposits of the bank to grow at a CAGR of ~28% between FY10 to FY13E
and advances to grow at a CAGR of ~29.6% during the same period. We expect the
overall CD ratio of IIB to be sustained at ~80% level.
Valuation
Strong platform laid
by the management
Post the control over IIB in 2008, the new management team has executed strong
performance over the last couple of years. The management’s turnaround in such a
small time frame is commendable and given their performance, we expect this to
continue over the next few years. The focus on improving the margin, strong growth in
fee income, cost control and superior return ratios will help the bank in sustaining the
profitability.
Growth in profits
expected due to
better income &
improvement in CASA
ratio
IIB has shown considerable performance in the last few years and we expect the
bank’s PAT to grow at a CAGR of ~67% between FY10 to FY13E. This will be on account
of robust growth in business, CASA and fee income. We expect core income to be
higher as the bank shifts its focus towards the high yielding CF business and also
reduces its RIDF portfolio. We expect the CASA to improve to 32.5% in FY13E. With
new products coming in, we expect good growth in fee income over the next couple of
years.
Currently, IIB is
available at a P/ABV
of 2.4x of FY13E
Currently at Rs.266, the stock is available at price to adj book value (P/ABV) of ~2.4x
of FY13E. We expect return ratio’s to improve from hereon for the bank i.e. RoAE to
improve from ~19.5% in FY10 to ~21% in FY13E and RoAA improve from 1.1% in FY10 to
1.6% in FY13E. We expect IIB to continue trading in the premium range due to the
robust growth seen in the business over the next couple of years along with superior
ratios. We value the bank’s business at 3x FY13E P/ABV. We initiate coverage on the
stock with a price target of Rs.328, an upside of ~23% from the current market price.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
A new management team led by Managing Director, Mr. Romesh
Sobti took charge of IndusInd Bank (IIB) in the year 2008. The team
made a huge impact in the first three years of their operation by
revamping the bank in terms of improving its earnings, improving
the productivity, healthy growth in the business coupled with
improving its asset quality. Overall, this team has been able to lay
a strong platform for the bank to be able to scale up their business
from hereon.
Investment Argument
Robust growth in business to continue
In the last two years, IIB’s business grew in line with the industry
growth rate. The total business of the bank grew at a healthy
CAGR of ~22% between FY08 to FY10. The advances grew by a
CAGR of ~26.7%, while the deposits grew at a CAGR of 18.5%
during the same period. While deposit growth was on the lower
side, CASA of IIB grew by a CAGR of 45.5% between FY08 to FY10
and the CASA ratio improved from 15.7% in FY08 to 23.7% in FY10.
We expect the improvement in CASA ratio to continue over the
next couple of years. We expect the business of IIB to grow at a
robust 28.7% between FY10 to FY13E.
Consistent improvement in NIM and RoAA
IIB’s Net Interest Margin (NIM) improved to 3.6% in Q3FY11 from
1.8% in Q3FY09. We expect the overall NIM to improve during the
current fiscal due to the growth in advances, improvement in
yields & control over cost due to increase in CASA. We expect the
NIM to move from ~3.2% in FY10 to ~3.8% in FY13E. The RoAA has
improved to 1.5% in the Q3FY11 against 0.7% in Q3FY09. We expect
the RoAA to improve from ~1.1% in FY10 to ~1.6% in FY13E and
RoAE to improve from 19.5% in FY10 to 20.7% in FY13E.
Asset quality under control
The gross NPA of IIB has decreased from 3.2% in Q1FY09 to ~1.2% in
Q3FY11. The net NPA has reduced from 7.2% in FY99 to 0.36% in
Q3FY11. IIB has also been able to meet the provision coverage
ratio of 70%. The restructure book of IIB at Rs.350 mn; lowest seen
in the industry & therefore we do not expect huge incremental
increase in NPA in IIB from this book.
Valuation
Currently at Rs.266, the stock is available at price to adj book
value (P/ABV) of ~2.4x of FY13E. We expect RoAE to improve from
~19.5% in FY10 to ~21% in FY13E and RoAA improve from 1.1% in
FY10 to 1.6% in FY13E. We value the bank’s business at 3x FY13E
P/ABV. We initiate coverage on the stock with a price target of
Rs.328, an upside of ~23% from the current market price
Investment Argument
Top management
turned around an
ailing bank
A new management team led by Managing Director, Mr. Romesh Sobti took charge of
IIB in the year 2008. Prior to this team from ABN AMRO, IIB was facing a number of
problems like poor asset quality, less visibility in the industry, poor quality of
earnings, etc. The team made a huge impact in the first three years of their operation
by revamping the bank in terms of improving its earnings, improving the productivity,
healthy growth in the business coupled with improving its asset quality. Overall, this
team has been able to lay a strong platform for the bank to be able to scale up their
business from hereon. IIB has been able to hold on the interest of the top
management by offering them lucrative ESOP’s which constituted ~7% of the total
equity capital as on Q3FY11.
Mr. Romesh Sobti
MD & CEO
Prior to IIB, Mr. Sobti was the Executive Vice President – Country
Executive, India and Head, UAE & Sub-Continent at ABN AMRO Bank N.V.
Mr. Sobti has been associated with ANZ Grindlays Bank Plc (now Standard
Chartered Bank) and State Bank of India in the past.
Mr. Paul Abraham
Chief Operating Officer
Before joining IIB, Mr. Abraham held the position of Managing Director,
ABN AMRO Central Enterprise Services (ACES).
Mr. Abraham started his career with ANZ Grindlays Bank (now Standard
Chartered Bank), way back in 1982.
Mr. K S Sridhar
Chief Risk Officer
Prior to IIB, Mr. Sridhar was handling bank-wide Risk Management at ABN
AMRO Bank N.V.
Mr. Sridhar was associated with State Bank of India at various levels prior
to joining ABN AMRO N.V.
Mr. Sumant Kathpalia
Head – Consumer Banking
Prior to joining IIB, Mr. Kathpalia was the Head – Consumer Banking at
ABN AMRO Bank N.V.
Mr. Kathpalia has had a vast variety of experience in consumer banking,
project management, credit cards, bancassurance, wealth management
and consumer finance.
Mr. Suhail Chander
Head – Corporate &
Commercial Banking
Prior to joining IIB, Mr. Chander held the position of Head, Consumer &
Commercial Banking, Singapore & Malaysia at ABN AMRO N.V.
Mr. Chander has wide experience of working in various geographical
locations in India and South-East Asia.
Mr. Ramesh Ganesan
Head – Transaction
Banking
Prior to joining IIB, Mr. Ganesan was the ED and Head Transaction
Banking at ABN AMRO Bank N.V.
Mr. Moses Harding
Head – Global Markets
Group
Prior to joining IIB, Mr. Harding, had an overseas stint during 2002-03
based out of London/Dubai focusing on Wealth Management business
covering all asset classes of global markets.
Mr. Suresh Pai
Head – Corporate Services
& Communications
Prior to joining IIB, Mr. Pai worked with Corporation Bank for 25 years
and was heading the zones like Delhi, Mumbai and Bangalore.
Mr. S V Parthasarathy
Head – Consumer Finance
Prior to joining IIB , Mr. Parthasarathy was associated with Ashok Leyland
Ltd. and held the position of ED, in charge of the Vehicle Finance
business in erstwhile ALFL.
Mr. Zubin Mody
Head – Human Resource
Prior to joining IIB, Mr. Mody was heading the HR function at ICICI
Lombard.
IIB has shown consistent growth in the recent past in terms of business, margins, cost
efficiency & better employee productivity. We believe that this consistency in the
overall performance of the bank is going to continue over the next couple of years.
The new management has been successful in reviving the financial health of IIB. Their
main focus was not only on the business & the margins, but also the profitability & the
quality of the assets.
This has now laid a strong base for the bank, enabling it to scale higher in terms of
scalability in business along with overall profitability. The bank is now looking for the
second phase of growth between FY11E to FY14E with an aim to improve the return
ratios, asset quality, margins, cost efficiency and employee productivity.
The overall business has grown at a CAGR of ~18% from FY06 to FY10. However, on a
quarterly basis, the business has grown at a Cumulative Quarterly Growth Rate (CQGR)
of 5.9% from Q1FY09 to Q3FY11. Deposits have grown by a CQGR of 5.4% from Q1FY09
to Q3FY11 and advances have grown by 6.5% from Q1FY09 to Q3FY11. Credit – deposit
ratio has improved from as low as ~69.7% in Q3FY09 to ~81.5% in Q3FY11, which has
led to strong topline growth from core fee income. The CASA on a CQGR basis has
grown by 9.9% from Q1FY09 to Q3FY11
Going forward, we expect the business growth to be higher than industry average,
mainly on account of the low base & focused management. The management, so far
had been trying to lay a foundation for the revival of IIB. This has been laid now and
thus we expect the focus of the management to shift towards the growth stage. We
expect the overall business of IIB to grow at a CAGR of 28.7% between FY10 to FY13E.
We expect the deposits of the bank to grow at a CAGR of ~28% between FY10 to FY13E
and advances to grow at a CAGR of ~29.6% during the same period. We expect the
overall CD ratio of IIB to be sustained at ~80% level.
Valuation
Strong platform laid
by the management
Post the control over IIB in 2008, the new management team has executed strong
performance over the last couple of years. The management’s turnaround in such a
small time frame is commendable and given their performance, we expect this to
continue over the next few years. The focus on improving the margin, strong growth in
fee income, cost control and superior return ratios will help the bank in sustaining the
profitability.
Growth in profits
expected due to
better income &
improvement in CASA
ratio
IIB has shown considerable performance in the last few years and we expect the
bank’s PAT to grow at a CAGR of ~67% between FY10 to FY13E. This will be on account
of robust growth in business, CASA and fee income. We expect core income to be
higher as the bank shifts its focus towards the high yielding CF business and also
reduces its RIDF portfolio. We expect the CASA to improve to 32.5% in FY13E. With
new products coming in, we expect good growth in fee income over the next couple of
years.
Currently, IIB is
available at a P/ABV
of 2.4x of FY13E
Currently at Rs.266, the stock is available at price to adj book value (P/ABV) of ~2.4x
of FY13E. We expect return ratio’s to improve from hereon for the bank i.e. RoAE to
improve from ~19.5% in FY10 to ~21% in FY13E and RoAA improve from 1.1% in FY10 to
1.6% in FY13E. We expect IIB to continue trading in the premium range due to the
robust growth seen in the business over the next couple of years along with superior
ratios. We value the bank’s business at 3x FY13E P/ABV. We initiate coverage on the
stock with a price target of Rs.328, an upside of ~23% from the current market price.
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