IndusInd Bank reported 52% YoY growth in net profit to Rs1.8bn, ::HDFC Sec,

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IndusInd Bank reported 52% YoY growth in net profit to Rs1.8bn, mainly
due to strong growth in advances, robust fee income growth and lower loan
loss provisions. Key highlights from the results were a) healthy business
growth b) improvement in CASA ratio by 100bps QoQ to 28%, c)
contraction in NIMs by 9bps QoQ to 3.4% and d) deterioration in asset
quality as fresh slippages came in higher at 1.03% of advances (v/s 84bps
in Q4). We expect IndusInd to realize a 24% CAGR in net profit over FY11-
13E. Maintain HOLD.
In-line results
IndusInd Bank reported 52% YoY and 5% QoQ growth in net profit to Rs1.8bn,
mainly due to strong volumes growth, robust fee income growth and lower loan loss
provisions. The net interest income for the quarter remained flat QoQ but grew 32%
YoY. Non-interest income grew 34% YoY and 19% QoQ on the back of robust fee
income growth (44% YoY and 13% QoQ). Fee income growth came on the back of
increase in income from third party products, foreign exchange income and
investment banking fees. The cost/income ratio increased by 80bps QoQ to ~49%;
we expect the cost/income ratio to expand over FY12-13E on account of higher
employee expenses and expansion in branch network. The loan loss provisions were
lower as compared to 1QFY11 and 4QFY11 even as credit cost declined by 30bps to
60bps (annualized).
Healthy business growth; margins shrunk
IndusInd Bank reported healthy business growth at 30% YoY and 5% QoQ driven by
both robust growth in advances (31% YoY and 8% QoQ) and deposits (29% YoY and
~3% QoQ).The advances growth was driven by the consumer finance division (41%
YoY and 9% QoQ), within consumer finance division, CV loans growth remained
strong at 40% YoY and 8% QoQ. The business mixed improved and the creditdeposit
ratio expanded by 440bps QoQ to 80%.We were positively surprised sharp
improvement in CASA ratio which improved 100bps QoQ to 28%, CASA deposits
contributed strong 66% of the incremental deposits on a QoQ basis. The cost of
deposits (calculated) increased by 80bps QoQ on account of higher interest rates
offered for the saving deposits and lag effect in reprising of deposits, while the yield
on advances (calculated) increased by just 20bps QoQ. As a result, the NIMs
contracted by 9bps QoQ to 3.4%. We expect the margins to remain under pressure.
Asset quality deteriorated; Maintain HOLD
Asset quality deteriorated during the quarter as gross NPAs increased by 16% QoQ
to 1.1% of advances. During the quarter, fresh slippages stood at Rs730m implying
a slippage ratio of 1% of advances (annualized – we believe partly due to seasonal
trend). The coverage ratio remained stable at 73%, even as the bank made lower
loan loss provisions. We believe the stock is quite rich in valuations and hence see
limited upside. Maintain HOLD.