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Key Takeaways
IndusInd Bank to sustain margins above the industry
High interest rates and moderation in economic growth are likely to see systemic
credit growth decelerating to 17-18%. While some new projects have been deferred,
the pull in working capital is strong.
IndusInd Bank's (IIB) management expects to leverage its niche expertise and on a
lower base expects loan growth to be ~25%.
While there has been some moderation in demand in the new CV segment, IIB has
tried to de-risk its growth by incrementally lending in the used CV segment (4-5
years old), where demand is strong.
Higher working capital requirement and the consumer finance segment are expected
to drive FY12 loan growth. The management intends to increase its consumer finance
book to ~50% from ~45% in 1QFY12.
Margins to moderate in 2QFY12
A sharp rise in the cost of deposits (+68bp QoQ) led to a 10bp decline in reported
margins to 3.4%.
The management expects margins to remain under pressure in 2QFY12 as the lag
impact of deposit re-pricing continues. However stabilization in the cost of deposits
and continuous re-pricing of loans will keep margins stable/ improving in 2HFY12.
Asset quality to remain healthy
1QFY12 annualized slippage ratio was ~1.1% against ~0.9% in FY11. Higher
slippages came from the consumer finance division segment, where slippage ratio
was 1.96%.
The management stated that its strategy of keeping away from stress sectors like
unsecured retail, real estate, textiles and white goods has put it in a comfortable
position as far as delinquencies were concerned.
While stress at the lower end of the SME segment is visible, its exposure is largely
backed by collateral, which reduces the risk of default.
IIB's exposure to the infrastructure segment is largely towards working capital
requirement (~90%) and to companies where the project is up and running, hence
there are no reasons for concern.
Valuation and view
Superior margins, focused fee income strategy and control over C/I ratio will keep
core operating profitability strong. Improving liability franchise, structural
improvement in RoA and 25%+ asset growth should help IIB to post one of the
highest PAT growths (~28%) among banks under our coverage. The stock trades at
2.5x FY12E and 2.1x FY13E BV, and at 14.6x FY12E and 11.7x FY13E EPS. Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
IndusInd Bank to sustain margins above the industry
High interest rates and moderation in economic growth are likely to see systemic
credit growth decelerating to 17-18%. While some new projects have been deferred,
the pull in working capital is strong.
IndusInd Bank's (IIB) management expects to leverage its niche expertise and on a
lower base expects loan growth to be ~25%.
While there has been some moderation in demand in the new CV segment, IIB has
tried to de-risk its growth by incrementally lending in the used CV segment (4-5
years old), where demand is strong.
Higher working capital requirement and the consumer finance segment are expected
to drive FY12 loan growth. The management intends to increase its consumer finance
book to ~50% from ~45% in 1QFY12.
Margins to moderate in 2QFY12
A sharp rise in the cost of deposits (+68bp QoQ) led to a 10bp decline in reported
margins to 3.4%.
The management expects margins to remain under pressure in 2QFY12 as the lag
impact of deposit re-pricing continues. However stabilization in the cost of deposits
and continuous re-pricing of loans will keep margins stable/ improving in 2HFY12.
Asset quality to remain healthy
1QFY12 annualized slippage ratio was ~1.1% against ~0.9% in FY11. Higher
slippages came from the consumer finance division segment, where slippage ratio
was 1.96%.
The management stated that its strategy of keeping away from stress sectors like
unsecured retail, real estate, textiles and white goods has put it in a comfortable
position as far as delinquencies were concerned.
While stress at the lower end of the SME segment is visible, its exposure is largely
backed by collateral, which reduces the risk of default.
IIB's exposure to the infrastructure segment is largely towards working capital
requirement (~90%) and to companies where the project is up and running, hence
there are no reasons for concern.
Valuation and view
Superior margins, focused fee income strategy and control over C/I ratio will keep
core operating profitability strong. Improving liability franchise, structural
improvement in RoA and 25%+ asset growth should help IIB to post one of the
highest PAT growths (~28%) among banks under our coverage. The stock trades at
2.5x FY12E and 2.1x FY13E BV, and at 14.6x FY12E and 11.7x FY13E EPS. Buy.
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