IndusInd Bank: Continues to deliver on CASA and growth :: JPMorgan

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IndusInd Bank - JPMorgan FOCUS st
Overweight
INBK.BO, IIB IN
Continues to deliver on CASA and growth


 Strong 1Q: IndusInd reported net profit of Rs1.8bn, ~10% higher than
our estimates. NII was inline with estimates but fee income growth
surprised, leading to most of the profit beat. Overall, we see the
performance in 1Q12 as very strong given robust loan growth, strong fee
income growth and continued delivery on CASA.
 Strong loan and fee growth: Loan growth was higher than expected at
8.5% q/q with market share gains in vehicle funding in spite of the
slowdown in auto sales. Fee income growth surprised the most with
~42% y/y growth in core fees driven by strong growth in forex, third
party distribution and investment banking business. Overall we expect
fee income growth to continue to exceed asset growth in FY12.
 Continues to deliver on CASA: Margins declined by 10bps q/q to 3.4%
v/s 3.5% in 4Q10. Margin performance in 1Q12 was relatively robust in
spite of increase in savings deposit costs and repricing of deposits given
sharp repricing of corporate book (+90bps q/q) and improving CASA
ratio (110bps q/q) . In spite of increasing rates, IIB continues to deliver
on CASA which we see as one of the primary drivers of ROA
improvement in phase II growth for IIB.
 Asset quality robust: Gross NPAs did inch up 16% q/q to Rs3.1bn
from Rs2.7bn in 4Q11 but some part of the increase is due to the
purchase of the Deutsche bank credit card business. Credit costs
continued to remain low at <70bps in 1Q12.
 Maintain Overweight: We revise earnings by 1-2% for FY12-13E
driven by higher core fee income and maintain our OW recommendation
on IndusInd as it continues to deliver on most parameters and we see
possibility of upside surprise to our 1.5-1.6% ROA assumption. Our PT
implies 3.4x FY12E book. Key risks include: (1) execution risks with the
branch expansion; and (2) the cyclical nature of the CV business can
impact credit growth.