IndusInd Bank- Healthy core performance; strong business growth ::Prabhudas Lilladher,

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􀂄 Operating performance in line; robust fee income and business growth:
IndusInd Bank (IIB) reported Q1FY12 PAT of Rs1.80bn, up by 52.0% YoY and
4.9% QoQ, marginally ahead of our as well as street expectations. Net Interest
Income (NII) for the quarter grew by 31.9% YoY and marginally by 0.5% QoQ as
margins contracted by 9bps QoQ to 3.41%. Key positives during the quarter
were: 1) robust 44.4% YoY and 13.5% QoQ increase in the core fee income
driven by higher FX fees and distribution income during the quarter largely
negating the impact of margin contraction 2) higher than industry business
growth with advances (mainly on account of strong growth in UV, car and
corporate loans) and deposits growing by 31.4% and 28.8% YoY respectively and
3) CASA balances growing by 49.3% YoY and 6.6% QoQ resulting into a 1% point
QoQ improvement in CASA ratio to 28.2%. However, strong fee income growth
could not translate into higher bottom line growth on account of 10.8% QoQ
increase in provisioning expenses due to Rs50-60mn provisions made on the
credit card portfolio acquired by the bank during the quarter.
􀂄 Gross NPAs inch up QoQ; healthy provision cover maintained: Gross NPAs
during the quarter increased by 16.3% QoQ on account of certain accounts
slipping into the NPA category technically. However, the management remains
positive over the asset quality outlook for the bank. Notably, provision coverage
remained steady at 72.9% v/s 72.6% in the previous quarter.
􀂄 Outlook: IIB has entered the second phase of its growth cycle and the
management remains focussed on achieving scale with profitability. We believe
the management continues to demonstrate their superior execution capabilities
and will likely continue to deliver on various operating parameters chalked out
by them in the second phase of growth. At CMP, the stock trades at 2.6x its
FY13E ABV. We maintain “BUY” with a price target of Rs325.