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Indusind Bank
Breaking into the big league
Indusind Bank’s remarkable turnaround has been richly rewarded
with the stock outperforming the benchmark BSE Bankex by a
whopping 68% since our initiation and 28% YoY. We expect
improved synergies between the bank’s sizeable retail assets and
deposits base to support a higher growth momentum than peers and
to lead to continued outperformance. We remain buyers.
Indusind has an established retail customer base...
Indusind’s retail loan book had grown ~ 50% from FY09 levels riding on the back
of a booming auto sales cycle. The bank’s retail loan book remains dominated by
auto and commercial vehicle (‘CV’) loans (41% of loans). This segment is the
strongest lending segment for the bank due to its three decade old operations in
auto and CV finance (in initial years as part of Ashok Leyland Finance). Having
survived multiple credit cycles in this niche lending segment, we think Indusind
now has the necessary experience to further scale up its retail lending franchise
by expanding its product range vs. its current strong CV finance focus.
...which will help build its liability franchise
In a recent earnings call, the bank’s CEO Ramesh Sobti indicated the bank’s
intention of improving retail funding support to the bank’s niche commercial
vehicle finance business. This strategy is in line with our analysis of successful
private banks in other emerging market countries like Poland, Brazil and Spain.
In these markets, the successful mid market banks built successful liability
franchises by increasing their retail lending operations as well.
Breaking into the big league
While the bank had added nearly 80 branches since Mar’08 (the bank received
the RBI’s signoff on branch expansion only in June’09) and had a 258 branch
strong network its traction on savings deposits has been muted. Low cost
current and savings deposits comprised 26.8% of its deposit base in 9MFY11 with
current deposits’ contribution having expanded by nearly 600bps in this period
to 18.4% (of deposits) vs. a mere 300bps expansion incase of savings deposits
to 8.4% (of deposits) in the same period. However, we expect the bank’s savings
deposits base to gain faster traction on the back of (a) growing branch
network, and (b) its strategy of increasing its target retail deposit base
through its lending business. Overall, our analysis of successful private sector
banks in India and across other geographies also shows that IIB’s is a proven
strategy which has been successfully executed by other banks. We now expect
current and savings deposits to rise to 30% and 32% of deposits in FY12 & FY13
respectively.
Risks to our ‘Buy’ call
(a) Slowdown in Indusind’s low cost ‘CASA’ deposits’ growth momentum due to
rising competitive pressure; (b) Aggressive branch expansion plans and higher
than expected retail delinquencies depressing RoEs.
Valuation: Franchise merits premium
At Rs 274, Indusind trades at 2.4x FY13E BV, in-line with the private sector
bank’s average (ex IIB). We believe the bank’s superior retail franchise and
growing branch network is likely to sustain a faster growth momentum than its
mature private sector peers and hence a premium valuation is justified. We
upgrade our FY12 and FY13 earnings by 10-14% to factor in superior NIMs amidst
stable credit costs. Revised valuation of Rs 330 indicates a 20% upside and an
implied FY13E P/BV of 2.8x.
Company snapshot
Promoted by the Hinduja Group in 1994, Indusind bank is a midsized private
sector bank with 258 branches. It has a significant presence in the vehicle
financing business (2nd biggest vehicle financier in India) with a loan book in this
segment of Rs 90bn (36% of loans). In 2008, after a prolonged period of poor
earnings performance and lacklustre growth, the bank brought on board
experienced ABN Amro country head Romesh Sobti (current MD & CEO) and four
of his former colleagues from the foreign bank.
The bank’s Rs 250bn loan book is currently dominated by corporate loans (68%
of loans) although the bank has a large retail loan book dominated by auto/ CV
loans (42% of loans).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indusind Bank
Breaking into the big league
Indusind Bank’s remarkable turnaround has been richly rewarded
with the stock outperforming the benchmark BSE Bankex by a
whopping 68% since our initiation and 28% YoY. We expect
improved synergies between the bank’s sizeable retail assets and
deposits base to support a higher growth momentum than peers and
to lead to continued outperformance. We remain buyers.
Indusind has an established retail customer base...
Indusind’s retail loan book had grown ~ 50% from FY09 levels riding on the back
of a booming auto sales cycle. The bank’s retail loan book remains dominated by
auto and commercial vehicle (‘CV’) loans (41% of loans). This segment is the
strongest lending segment for the bank due to its three decade old operations in
auto and CV finance (in initial years as part of Ashok Leyland Finance). Having
survived multiple credit cycles in this niche lending segment, we think Indusind
now has the necessary experience to further scale up its retail lending franchise
by expanding its product range vs. its current strong CV finance focus.
...which will help build its liability franchise
In a recent earnings call, the bank’s CEO Ramesh Sobti indicated the bank’s
intention of improving retail funding support to the bank’s niche commercial
vehicle finance business. This strategy is in line with our analysis of successful
private banks in other emerging market countries like Poland, Brazil and Spain.
In these markets, the successful mid market banks built successful liability
franchises by increasing their retail lending operations as well.
Breaking into the big league
While the bank had added nearly 80 branches since Mar’08 (the bank received
the RBI’s signoff on branch expansion only in June’09) and had a 258 branch
strong network its traction on savings deposits has been muted. Low cost
current and savings deposits comprised 26.8% of its deposit base in 9MFY11 with
current deposits’ contribution having expanded by nearly 600bps in this period
to 18.4% (of deposits) vs. a mere 300bps expansion incase of savings deposits
to 8.4% (of deposits) in the same period. However, we expect the bank’s savings
deposits base to gain faster traction on the back of (a) growing branch
network, and (b) its strategy of increasing its target retail deposit base
through its lending business. Overall, our analysis of successful private sector
banks in India and across other geographies also shows that IIB’s is a proven
strategy which has been successfully executed by other banks. We now expect
current and savings deposits to rise to 30% and 32% of deposits in FY12 & FY13
respectively.
Risks to our ‘Buy’ call
(a) Slowdown in Indusind’s low cost ‘CASA’ deposits’ growth momentum due to
rising competitive pressure; (b) Aggressive branch expansion plans and higher
than expected retail delinquencies depressing RoEs.
Valuation: Franchise merits premium
At Rs 274, Indusind trades at 2.4x FY13E BV, in-line with the private sector
bank’s average (ex IIB). We believe the bank’s superior retail franchise and
growing branch network is likely to sustain a faster growth momentum than its
mature private sector peers and hence a premium valuation is justified. We
upgrade our FY12 and FY13 earnings by 10-14% to factor in superior NIMs amidst
stable credit costs. Revised valuation of Rs 330 indicates a 20% upside and an
implied FY13E P/BV of 2.8x.
Company snapshot
Promoted by the Hinduja Group in 1994, Indusind bank is a midsized private
sector bank with 258 branches. It has a significant presence in the vehicle
financing business (2nd biggest vehicle financier in India) with a loan book in this
segment of Rs 90bn (36% of loans). In 2008, after a prolonged period of poor
earnings performance and lacklustre growth, the bank brought on board
experienced ABN Amro country head Romesh Sobti (current MD & CEO) and four
of his former colleagues from the foreign bank.
The bank’s Rs 250bn loan book is currently dominated by corporate loans (68%
of loans) although the bank has a large retail loan book dominated by auto/ CV
loans (42% of loans).
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