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IndusInd Bank (IIB)
Banks/Financial Institutions
All-round strong performance. IIB reported yet another strong quarter with stable
margins and lower provisions driving earnings. Loan portfolio continues to impress with
lower delinquencies, while improving liability profile and higher asset yields are
providing stability of margins. We broadly maintain our current estimates and see
limited risks to the underlying business performance. However, we find valuations at 3X
FY2012E book and 18X EPS being expensive and hence limited upsides in the near
term. However, given the strong growth traction, we maintain BUY with a TP of `315.
Margins continue to impress; higher corporate lending yields cushion sharp rise in deposit costs
NIMs for the quarter declined marginally by 10 bps qoq at 3.5% levels. The performance is
impressive—coming on the backdrop of declining CD ratio and the gradual impact of equity
capital raised in September 2010 wearing off. Yields in the corporate loan portfolio improved by
80 bps while retail loan portfolio increased by 30 bps, cushioning the impact of 85 bps increase in
deposit costs. CASA ratio for the quarter was flat qoq at 27%. While the management continues
to maintain a positive outlook on NIMs for FY2012E, we are modeling a 10 bps decline, as the
ability to rapidly improve its low-cost liability franchise would be challenging and ability to pass on
higher deposit rates would be limited.
Loan growth marginally lower than expectations, partially due to loan sell-down
Loans grew by 27% yoy, or about 4.7% qoq to `262 bn, marginally below our expectations as the
bank sold loans to manage its balance sheet. Retail loans grew by 40% yoy while the non-retail
portfolio grew by 19% yoy. Vehicle loan portfolio grew by 40% yoy primarily driven by
commercial vehicles (10% qoq but partially assisted by used vehicle loan portfolio). We broadly
maintain our positive outlook on loan growth for the bank at 30% CAGR for FY2011-13E, given
the relatively smaller balance sheet size of the bank and also the attractiveness of the target
segments while some of the new initiatives in used vehicle loans, loans against property and credit
cards offer comfort in the bank’s ability to grow at higher multiples to industry average.
Asset quality trends show further improvement
Asset quality showed further improvement with NPLs declining qoq driven by lower slippages.
Gross NPL declined 13% qoq to `2.7 bn (1% of loans) while net NPL declined 20% qoq (0.3% of
loans). Slippages for the quarter were 0.9% as compared to 1.5% in December 2010 mainly due
to lower slippages from the corporate and commercial loans. Loan-loss provisions (annualized)
were at 0.5% for the quarter. Entry into the marginally higher risk segment of used vehicles and
credit cards would imply a rise in slippages from FY2012-13E and we are building loan-loss
provisions to touch 0.8% in FY2013E.
Credit card business acquisition appears expensive; scalability to be faster
While the exact deal size has not been reported, we understand that the card business has
been bought at a marginal premium to the outstanding loans (`2.2 bn) adjusted for any
losses. IndusInd Bank is looking to make this expensive acquisition value accretive in the
current financial year and contribute to about 4-5% of revenues in the next few years. The
management was comfortable with the client profile of cards acquired and delinquency
levels of this portfolio. It plans to double the issuance of new cards taking the total cards to
0.5 mn over the next three years. Currently, the delinquency performance (90 dpd) is at
about 4% levels compared to 8% in FY2011. Acquisition appears expensive but we are
positive as it accelerates the banks’ entry into this segment and extends the retail product
portfolio.
Core fee subdued in the past three quarters
Non-interest income grew impressively by 37% yoy to `1.8 bn but remained lower than our
estimates due to lower-than-expected core fee income performance. Core fee income
performance has been a bit subdued with an average run-rate of `1.6 bn revenues over the
past three quarters. Income from foreign exchange was relatively weak qoq at `266 mn
compared to `327 mn in December 2010, partially due to higher one-off income. Income
from investment banking was weak qoq but it is a function of the underlying business
opportunity which is lumpy in certain quarters. We are building fee income to grow by 30%
CAGR for FY2011-13E.
Other highlights for the quarter
The bank has made a minor change on its depreciation policy accelerating provisions for
various fixed assets. This has resulted in reported profits being lower by `84.5 mn for
FY2011.
Cost-income ratio for the quarter was at 48% and we expect this trend to be maintained
at current levels for FY2012-13E. The bank opened 42 branches and 29 ATMs for the
quarter, taking the total branch network to 300 and ATM count to 594.
Capital adequacy ratio stands comfortable with overall CAR at 15.9%. Tier-1 ratio is
currently at 12.3%. Dividend per share for FY2011 was `2/share implying a lower payout
ratio of 16% in FY2011 compared to 21% in FY2010. Given the healthy Tier-1 ratio, we
don’t expect any near-term capital infusion for the bank
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IndusInd Bank (IIB)
Banks/Financial Institutions
All-round strong performance. IIB reported yet another strong quarter with stable
margins and lower provisions driving earnings. Loan portfolio continues to impress with
lower delinquencies, while improving liability profile and higher asset yields are
providing stability of margins. We broadly maintain our current estimates and see
limited risks to the underlying business performance. However, we find valuations at 3X
FY2012E book and 18X EPS being expensive and hence limited upsides in the near
term. However, given the strong growth traction, we maintain BUY with a TP of `315.
Margins continue to impress; higher corporate lending yields cushion sharp rise in deposit costs
NIMs for the quarter declined marginally by 10 bps qoq at 3.5% levels. The performance is
impressive—coming on the backdrop of declining CD ratio and the gradual impact of equity
capital raised in September 2010 wearing off. Yields in the corporate loan portfolio improved by
80 bps while retail loan portfolio increased by 30 bps, cushioning the impact of 85 bps increase in
deposit costs. CASA ratio for the quarter was flat qoq at 27%. While the management continues
to maintain a positive outlook on NIMs for FY2012E, we are modeling a 10 bps decline, as the
ability to rapidly improve its low-cost liability franchise would be challenging and ability to pass on
higher deposit rates would be limited.
Loan growth marginally lower than expectations, partially due to loan sell-down
Loans grew by 27% yoy, or about 4.7% qoq to `262 bn, marginally below our expectations as the
bank sold loans to manage its balance sheet. Retail loans grew by 40% yoy while the non-retail
portfolio grew by 19% yoy. Vehicle loan portfolio grew by 40% yoy primarily driven by
commercial vehicles (10% qoq but partially assisted by used vehicle loan portfolio). We broadly
maintain our positive outlook on loan growth for the bank at 30% CAGR for FY2011-13E, given
the relatively smaller balance sheet size of the bank and also the attractiveness of the target
segments while some of the new initiatives in used vehicle loans, loans against property and credit
cards offer comfort in the bank’s ability to grow at higher multiples to industry average.
Asset quality trends show further improvement
Asset quality showed further improvement with NPLs declining qoq driven by lower slippages.
Gross NPL declined 13% qoq to `2.7 bn (1% of loans) while net NPL declined 20% qoq (0.3% of
loans). Slippages for the quarter were 0.9% as compared to 1.5% in December 2010 mainly due
to lower slippages from the corporate and commercial loans. Loan-loss provisions (annualized)
were at 0.5% for the quarter. Entry into the marginally higher risk segment of used vehicles and
credit cards would imply a rise in slippages from FY2012-13E and we are building loan-loss
provisions to touch 0.8% in FY2013E.
Credit card business acquisition appears expensive; scalability to be faster
While the exact deal size has not been reported, we understand that the card business has
been bought at a marginal premium to the outstanding loans (`2.2 bn) adjusted for any
losses. IndusInd Bank is looking to make this expensive acquisition value accretive in the
current financial year and contribute to about 4-5% of revenues in the next few years. The
management was comfortable with the client profile of cards acquired and delinquency
levels of this portfolio. It plans to double the issuance of new cards taking the total cards to
0.5 mn over the next three years. Currently, the delinquency performance (90 dpd) is at
about 4% levels compared to 8% in FY2011. Acquisition appears expensive but we are
positive as it accelerates the banks’ entry into this segment and extends the retail product
portfolio.
Core fee subdued in the past three quarters
Non-interest income grew impressively by 37% yoy to `1.8 bn but remained lower than our
estimates due to lower-than-expected core fee income performance. Core fee income
performance has been a bit subdued with an average run-rate of `1.6 bn revenues over the
past three quarters. Income from foreign exchange was relatively weak qoq at `266 mn
compared to `327 mn in December 2010, partially due to higher one-off income. Income
from investment banking was weak qoq but it is a function of the underlying business
opportunity which is lumpy in certain quarters. We are building fee income to grow by 30%
CAGR for FY2011-13E.
Other highlights for the quarter
The bank has made a minor change on its depreciation policy accelerating provisions for
various fixed assets. This has resulted in reported profits being lower by `84.5 mn for
FY2011.
Cost-income ratio for the quarter was at 48% and we expect this trend to be maintained
at current levels for FY2012-13E. The bank opened 42 branches and 29 ATMs for the
quarter, taking the total branch network to 300 and ATM count to 594.
Capital adequacy ratio stands comfortable with overall CAR at 15.9%. Tier-1 ratio is
currently at 12.3%. Dividend per share for FY2011 was `2/share implying a lower payout
ratio of 16% in FY2011 compared to 21% in FY2010. Given the healthy Tier-1 ratio, we
don’t expect any near-term capital infusion for the bank
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