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UBS Investment Research
IndusInd Bank
Management meeting takeaways
„ Growth momentum remains strong
We met with management of IIB to get an update on the business. Management is
looking to grow at its comfort rate of 25-30% in FY12. CV portfolio is growing at
a healthy rate of 35% (lower than 40% in FY11) as IIB is gaining market share at
the expense of other fringe NBFCs which have been impacted due to increase in
market rates. Demand for working capital remains strong; bank is also building in
credit card/LAP portfolio to offset any decline in vehicle loans.
„ NIMs to decline 20 bps in H1FY12e; Fee income to offset pressure on RoA
With sustained increase in wholesale rate, NIMs are likely to witness a decline of
15-20 bps to 3.3% levels over next two quarters due to savings rate hike, repricing
of TD rates with limited potential for further asset re-pricing. Fee income is likely
to offset NIM decline with new revenue streams in form of credit card fees (post
acquisition of DB card business) and tie up with HDFC for mortgage origination.
„ Retail asset quality benign; Corporate no signs of stress
Management still expects mid cycle credit costs on its retail book and is witnessing
subdued NPL additions and write offs. In corporate segment, Bank has managed to
avoid some sectors which are witnessing issues like Infrastructure (<2%), telecom,
Aviation (no exposure). MFI exposure has been reduced to
„ Valuation: Maintain Buy with PT of Rs 300
Our earnings estimates are unchanged however we cut our NIMs estimates while
increasing fee. We like the bank for its profitable and high growth potential. It
trades at 2.8x FY12e book and 17x FY12e earnings with EPS CAGR of 26%
during FY12-13e. We derive our price target from a residual income based model.
Meeting takeaways
Q Growth momentum remains strong with Vehicle portfolio still growing
strong in April/May. Management reckons IIB is gaining market share as
competition from smaller NBFCs has been impacted due to higher funding
costs. Demand for working capital financing remains healthy with input costs
going up. Bank intends to grow at 25-30% in FY12 with focus on improving
liability mix.
Q NIM pressures will show up in first half; management expect 15-20 bps
decline in NIMs. Dual impact of savings rate increase and term deposits repricing will impact cost of borrowings; some of which has been passed
through. Bank believes resistance to higher lending rates is increasing and
any further material increase will be difficult to pass through.
Q IndusInd Bank in April bought credit card business of Deutsche Bank which
was effected from June 1. The business has 200k credit cards with a loan
book of Rs 2.5 bn. IIB intends to increase the loan book size to Rs 10-12 bn
over next three years.
Q Asset quality trends are benign with low write offs and low NPL additions
currently. Corporate segment has a very granular book with low
concentration across sectors. Infrastructure finance is <2% for the bank
which has been a conscious decision by the bank given the ALM mismatch.
Q Priority sector norms are currently being largely met by CV portfolio. Part of
corporate lending for warehouse financing, raw material procurements get
priority sector status. Bank has a shortfall of Rs 2-3 bn each in direct agri and
weaker section segment.
Q Bank has tied up with HDFC for originating mortgages on its behalf. IIB
earns a fee of 0.9% on disbursements (not origination) and has potential to
earn additional 0.5% on distributing general insurance on the property; aside
from a potential opening of a savings account for the bank
Q IndusInd Bank
IndusInd, a private sector bank, was established in 1994 and merged with Ashok
Leyland Finance in 2004. It has representative offices in Dubai and London. It
had 210 branches and 427 ATMs in 168 cities in India as of March 2010. Its
asset base was US$7.8bn and vehicle financing, which is its biggest business,
constituted 40% of its loan book in FY10. Its major shareholder holds 22.2% of
its outstanding stock capital.
Q Statement of Risk
We believe an economic slowdown could impact the banking and finance sector
on several fronts: lead to slowdown in credit and deposits, increase in NPL risk,
impact fee income and exert pressure on NIM.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
IndusInd Bank
Management meeting takeaways
„ Growth momentum remains strong
We met with management of IIB to get an update on the business. Management is
looking to grow at its comfort rate of 25-30% in FY12. CV portfolio is growing at
a healthy rate of 35% (lower than 40% in FY11) as IIB is gaining market share at
the expense of other fringe NBFCs which have been impacted due to increase in
market rates. Demand for working capital remains strong; bank is also building in
credit card/LAP portfolio to offset any decline in vehicle loans.
„ NIMs to decline 20 bps in H1FY12e; Fee income to offset pressure on RoA
With sustained increase in wholesale rate, NIMs are likely to witness a decline of
15-20 bps to 3.3% levels over next two quarters due to savings rate hike, repricing
of TD rates with limited potential for further asset re-pricing. Fee income is likely
to offset NIM decline with new revenue streams in form of credit card fees (post
acquisition of DB card business) and tie up with HDFC for mortgage origination.
„ Retail asset quality benign; Corporate no signs of stress
Management still expects mid cycle credit costs on its retail book and is witnessing
subdued NPL additions and write offs. In corporate segment, Bank has managed to
avoid some sectors which are witnessing issues like Infrastructure (<2%), telecom,
Aviation (no exposure). MFI exposure has been reduced to
„ Valuation: Maintain Buy with PT of Rs 300
Our earnings estimates are unchanged however we cut our NIMs estimates while
increasing fee. We like the bank for its profitable and high growth potential. It
trades at 2.8x FY12e book and 17x FY12e earnings with EPS CAGR of 26%
during FY12-13e. We derive our price target from a residual income based model.
Meeting takeaways
Q Growth momentum remains strong with Vehicle portfolio still growing
strong in April/May. Management reckons IIB is gaining market share as
competition from smaller NBFCs has been impacted due to higher funding
costs. Demand for working capital financing remains healthy with input costs
going up. Bank intends to grow at 25-30% in FY12 with focus on improving
liability mix.
Q NIM pressures will show up in first half; management expect 15-20 bps
decline in NIMs. Dual impact of savings rate increase and term deposits repricing will impact cost of borrowings; some of which has been passed
through. Bank believes resistance to higher lending rates is increasing and
any further material increase will be difficult to pass through.
Q IndusInd Bank in April bought credit card business of Deutsche Bank which
was effected from June 1. The business has 200k credit cards with a loan
book of Rs 2.5 bn. IIB intends to increase the loan book size to Rs 10-12 bn
over next three years.
Q Asset quality trends are benign with low write offs and low NPL additions
currently. Corporate segment has a very granular book with low
concentration across sectors. Infrastructure finance is <2% for the bank
which has been a conscious decision by the bank given the ALM mismatch.
Q Priority sector norms are currently being largely met by CV portfolio. Part of
corporate lending for warehouse financing, raw material procurements get
priority sector status. Bank has a shortfall of Rs 2-3 bn each in direct agri and
weaker section segment.
Q Bank has tied up with HDFC for originating mortgages on its behalf. IIB
earns a fee of 0.9% on disbursements (not origination) and has potential to
earn additional 0.5% on distributing general insurance on the property; aside
from a potential opening of a savings account for the bank
Q IndusInd Bank
IndusInd, a private sector bank, was established in 1994 and merged with Ashok
Leyland Finance in 2004. It has representative offices in Dubai and London. It
had 210 branches and 427 ATMs in 168 cities in India as of March 2010. Its
asset base was US$7.8bn and vehicle financing, which is its biggest business,
constituted 40% of its loan book in FY10. Its major shareholder holds 22.2% of
its outstanding stock capital.
Q Statement of Risk
We believe an economic slowdown could impact the banking and finance sector
on several fronts: lead to slowdown in credit and deposits, increase in NPL risk,
impact fee income and exert pressure on NIM.
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