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• Very strong 4Q11: IndusInd Bank reported 4Q11 PAT of Rs1.7B, up
76%, and 8% higher than JPMe/consensus. Earnings quality was strong
– PPOP growth was in line with marginal NIM contraction. The positive
surprise was driven largely by credit costs. Delinquencies were at very
low levels; aggressive provisioning saw a 200bp uptick in coverage.
Loan growth at 30% was a 300bp miss but that was primarily from
aggressive selldowns in 4Q and is not a worry.
• Phase-II: Growth with superior return ratios: The focus on the next
phase of growth appears to be on earnings quality over growth.
Management was very clear in the analyst meet that the current ROA
levels of 1.6% are not in line with long-term objectives. The goal is to
improve this, while maintaining pristine asset quality with credit costs at
~80bp. Growth targets would be conservative at ~ 30%. Improved ROA
would be a significant long-term surprise – we estimate 1.5-1.6% ROAs
in FY12-13.
• CASA and new retail products – Key to Phase-II: Building on the
product gaps on the retail side backed by higher CASA funding should
be primary growth and margin drivers in phase-II. Enhancing the retail
product suite with new products such as mortgages, LAP, credit cards
and used CV financing would help improve yields and margins. Fee
income growth is targeted to remain robust with new verticals such as
investment banking contributing significantly.
• Maintain Overweight, increase PT to Rs325: We adjust our earnings
estimates marginally but increase our Gordon-growth-model-based Mar-
12 PT by 8% to Rs325 (from Rs300 earlier) as we factor in option value
of IIB delivering on >1.6% ROAs. We estimate 1.5-1.6% ROA in FY12-
13, and with strong delivery on CASA and profitability over the past two
years, we see the increased possibility of further return ratio
improvement. Our PT implies 2.9x FY13E book (15.7x FY13E EPS).
Key risks include: (1) execution risk of a profitable branch expansion;
and (2) the cyclical nature of the CV business can impact credit growth
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
• Very strong 4Q11: IndusInd Bank reported 4Q11 PAT of Rs1.7B, up
76%, and 8% higher than JPMe/consensus. Earnings quality was strong
– PPOP growth was in line with marginal NIM contraction. The positive
surprise was driven largely by credit costs. Delinquencies were at very
low levels; aggressive provisioning saw a 200bp uptick in coverage.
Loan growth at 30% was a 300bp miss but that was primarily from
aggressive selldowns in 4Q and is not a worry.
• Phase-II: Growth with superior return ratios: The focus on the next
phase of growth appears to be on earnings quality over growth.
Management was very clear in the analyst meet that the current ROA
levels of 1.6% are not in line with long-term objectives. The goal is to
improve this, while maintaining pristine asset quality with credit costs at
~80bp. Growth targets would be conservative at ~ 30%. Improved ROA
would be a significant long-term surprise – we estimate 1.5-1.6% ROAs
in FY12-13.
• CASA and new retail products – Key to Phase-II: Building on the
product gaps on the retail side backed by higher CASA funding should
be primary growth and margin drivers in phase-II. Enhancing the retail
product suite with new products such as mortgages, LAP, credit cards
and used CV financing would help improve yields and margins. Fee
income growth is targeted to remain robust with new verticals such as
investment banking contributing significantly.
• Maintain Overweight, increase PT to Rs325: We adjust our earnings
estimates marginally but increase our Gordon-growth-model-based Mar-
12 PT by 8% to Rs325 (from Rs300 earlier) as we factor in option value
of IIB delivering on >1.6% ROAs. We estimate 1.5-1.6% ROA in FY12-
13, and with strong delivery on CASA and profitability over the past two
years, we see the increased possibility of further return ratio
improvement. Our PT implies 2.9x FY13E book (15.7x FY13E EPS).
Key risks include: (1) execution risk of a profitable branch expansion;
and (2) the cyclical nature of the CV business can impact credit growth
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