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IndusInd Bank (INBK.BO)
Buy Equity Research
Above expectations; focus now on growth with scale; retain CL-Buy
What surprised us
IndusInd Bank (INBK) reported 4QFY11 net profit of Rs1.72bn (+12% qoq,
+75% yoy), 13% ahead of Gse and 5% ahead of Bloomberg consensus. Key
positives: 1) NII was in line with GSe at Rs3.9bn on higher advances (up 5%
qoq, +27% yoy), driven by growth in retail loans as the bank sold down its
corporate loan book; higher margins (NIM at 3.5%, +31bp yoy, -11bp qoq) on
improving CASA ratio (+36 bp qoq); 2) fee income came at Rs1.4bn, 7% ahead
of Gse (up 41% yoy) on third-party distribution income and higher
remittance/loan processing fees; (3) costs came in 5% below our estimate
(+33% yoy) despite expansion of branches (FY11 at 300 vs. 210 in FY10), on
better cost controls; (4) asset quality improved with gross NPL declining 13%
qoq to Rs2.7bn (1%), while net NPLs declined 20% qoq to Rs0.7bn, down 28%
yoy at 0.3%. Loan loss provisions were in line with GSe at 0.6% of loans and
PCR improved to 72.6%.
What to do with the stock
We revise our FY11-FY13E EPS by 3%-6% to reflect 4Q results, higher fee
income, lower costs. Accordingly, we raise our 12m CAMELOT-based TP to
Rs340 from Rs320, and reiterate our Buy (on CL) rating. We expect the
company to deliver EPS growth of over 24% in the next two years, with a
potential to surprise on the upside, driven by branch expansion (35% CAGR
between FY11-13E), increase in CASA ratio (36.4% in FY13E from 27.2% in
FY11), over 30% growth in fee income and focus on retail assets (currently
44% of overall loan book). We believe management’s strategy to focus on
manageable loan growth of 30% (not excessive, in our view), and its focus on
CASA are positive catalysts that could translate into higher earnings growth
with lower potential risk. Key risks: High dependence on wholesale deposits
(50% of total), frequent capital raisings (may not need capital in FY2012).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IndusInd Bank (INBK.BO)
Buy Equity Research
Above expectations; focus now on growth with scale; retain CL-Buy
What surprised us
IndusInd Bank (INBK) reported 4QFY11 net profit of Rs1.72bn (+12% qoq,
+75% yoy), 13% ahead of Gse and 5% ahead of Bloomberg consensus. Key
positives: 1) NII was in line with GSe at Rs3.9bn on higher advances (up 5%
qoq, +27% yoy), driven by growth in retail loans as the bank sold down its
corporate loan book; higher margins (NIM at 3.5%, +31bp yoy, -11bp qoq) on
improving CASA ratio (+36 bp qoq); 2) fee income came at Rs1.4bn, 7% ahead
of Gse (up 41% yoy) on third-party distribution income and higher
remittance/loan processing fees; (3) costs came in 5% below our estimate
(+33% yoy) despite expansion of branches (FY11 at 300 vs. 210 in FY10), on
better cost controls; (4) asset quality improved with gross NPL declining 13%
qoq to Rs2.7bn (1%), while net NPLs declined 20% qoq to Rs0.7bn, down 28%
yoy at 0.3%. Loan loss provisions were in line with GSe at 0.6% of loans and
PCR improved to 72.6%.
What to do with the stock
We revise our FY11-FY13E EPS by 3%-6% to reflect 4Q results, higher fee
income, lower costs. Accordingly, we raise our 12m CAMELOT-based TP to
Rs340 from Rs320, and reiterate our Buy (on CL) rating. We expect the
company to deliver EPS growth of over 24% in the next two years, with a
potential to surprise on the upside, driven by branch expansion (35% CAGR
between FY11-13E), increase in CASA ratio (36.4% in FY13E from 27.2% in
FY11), over 30% growth in fee income and focus on retail assets (currently
44% of overall loan book). We believe management’s strategy to focus on
manageable loan growth of 30% (not excessive, in our view), and its focus on
CASA are positive catalysts that could translate into higher earnings growth
with lower potential risk. Key risks: High dependence on wholesale deposits
(50% of total), frequent capital raisings (may not need capital in FY2012).
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