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IndusInd Bank
F2Q12: Strong Volume
Growth Drives Beat
What's Changed
%EPS Chg F12e/F13e/F14e 0.9%/0%/0%
Quick Comment – IndusInd reported a PAT of
Rs1.93bn (+7% QoQ, +45% YoY) for F2Q12 ahead of
our estimate of Rs1.8bn driven by stronger than
expected volume growth. New NPL creation picked
up (partly driven by one large account); GNPLs grew
by 8% QoQ.
New NPL creation is likely to continue to pick up in the
coming quarters – however, we believe that relatively
speaking the credit cycle for retail is likely to be better
than capex/infra. Indeed, in this quarter as well,
IndusInd’s retail delinquency trends were broadly stable.
We believe that IndusInd’s premium valuations (17x
F12e PE and 2.7x F12e P/BV) are more likely to be
sustained.
The key highlights from the results include:
NII grew by 7% QoQ and 27% YoY: While margins
saw a small compression of 6 bps QoQ – this was offset
by strong volume growth:
NIM was down 6 bps QoQ to 3.35%: The key reason
was an increase in cost of funding – which moved up by
52 bps QoQ to 7.15% driven by a combination of rising
cost of term deposits and falling CASA/deposits ratio
(down 50 bps QoQ). The other factor which would have
weighed on margin progression was that the loan to
deposit ratio also moved lower QoQ to 78.5% from
80.5% in QE Jun-11.
IndusInd buffered the impact on margins by increasing
the asset yields on a QoQ basis. Yield on corporate
loans went up by 56 bps QoQ to 11.8%. Yield on
consumer loans were broadly stable at 16.4% (given the
fixed rate nature of these loans). However, the
proportion of higher yielding fixed rate consumer loans
increased to 46.7% from 44.7% in QE Jun-11. Yield on
investments also moved up QoQ
Loans grew 6% QoQ, 28% YoY while deposits grew 9%
QoQ, 23% YoY. Consumer loans grew much faster at 11%
QoQ, 44% YoY while corporate loans grew by 2% QoQ,
17% YoY.
Term deposits grew by +10% QoQ and +19% YoY. CA
balances grew by 9% QoQ and +31% YoY; however SA
balances growth was weaker (sequentially) at +2% QoQ
and +40% YoY. As a result, CASA/deposits ratio moved
lower to 27.7% from 28.2% in QE Jun-11.
Core non-interest income grew by 30% YoY, 13% QoQ.
The volatile FX component was strong at +65% YoY, +24%
QoQ. Investment banking income was weak (-20% QoQ,
-57% YoY) – however, management expects momentum to
return in the coming quarters. Excluding FX and investment
banking income, core non-interest income was robust at
+12% QoQ, +34% YoY.
Costs to average assets ratio moved up to 2.65% (+15
bps QoQ) driven by increase in non-employee expenses
(+15% QoQ, +42% YoY). The key driver to the same was
branch expansion – IndusInd opened 24 branches this
quarter (in addition to the 26 opened in the QE Jun-11). The
full cost impact of this filtered through this quarter.
Employee cost trends were stable at 4% QoQ, 21% YoY.
New NPL creation picked up, early signs of stress? New
NPL creation picked up to Rs1,310mn (1.8% of loans,
annualized) from Rs730mn in QE Jun-11.
A bulk of the increase in new NPL creation was in the
commercial or corporate book where slippages increased to
Rs0.7bn from Rs0.16bn last quarter. Here the increase was
driven by one-large account of Rs0.46bn which was sold down
to asset reconstruction company (ARCIL) this quarter in
exchange for security receipts (hence increasing both
additions and reductions from NPLs).
Retail new NPL creation rate was broadly stable at Rs0.6bn (vs
Rs0.57bn last quarter). Management remains confident that it
is not seeing any significant stress building up on the asset
quality side in the retail book.
Gross NPLs were up 8% QoQ, 16% YoY and GNPL ratio was
stable QoQ at 1.09%. LLP/Avg. loans (annualized) was also
broadly stable QoQ at 57 bps. Coverage was at 72% (vs 72.9%
in QE-Jun 11).
Price Target Computation
We arrive at our price target of Rs300 using a probabilityweighted
residual income model. Our key assumptions are
unchanged. We assign weightings of 60% to our base case
value, 20% to our bull case value and 20% to our bear case
value.
We value the stock using a three-phase residual income model
– a five-year high-growth period and a 10-year maturity period,
followed by a declining period. We use a cost of equity of
14.3%, assuming a beta of 1.1, a risk-free rate of 8.5%, and a
market risk premium of 5.5%.
Wtd Price Target 300
Source: Company data, Morgan Stanley Research
Risks to Our Price Target
Key downside risks to our price target include:
slower-than-expected loan growth, a delay in branch
expansion plans, a stagnant CASA ratio, a sharp rise in short
rates, and a significant deterioration in asset quality.
Key upside risks include: As noted, volume growth, margins,
and credit costs still might surprise positively, as could
developments in the liability and fee franchises.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IndusInd Bank
F2Q12: Strong Volume
Growth Drives Beat
What's Changed
%EPS Chg F12e/F13e/F14e 0.9%/0%/0%
Quick Comment – IndusInd reported a PAT of
Rs1.93bn (+7% QoQ, +45% YoY) for F2Q12 ahead of
our estimate of Rs1.8bn driven by stronger than
expected volume growth. New NPL creation picked
up (partly driven by one large account); GNPLs grew
by 8% QoQ.
New NPL creation is likely to continue to pick up in the
coming quarters – however, we believe that relatively
speaking the credit cycle for retail is likely to be better
than capex/infra. Indeed, in this quarter as well,
IndusInd’s retail delinquency trends were broadly stable.
We believe that IndusInd’s premium valuations (17x
F12e PE and 2.7x F12e P/BV) are more likely to be
sustained.
The key highlights from the results include:
NII grew by 7% QoQ and 27% YoY: While margins
saw a small compression of 6 bps QoQ – this was offset
by strong volume growth:
NIM was down 6 bps QoQ to 3.35%: The key reason
was an increase in cost of funding – which moved up by
52 bps QoQ to 7.15% driven by a combination of rising
cost of term deposits and falling CASA/deposits ratio
(down 50 bps QoQ). The other factor which would have
weighed on margin progression was that the loan to
deposit ratio also moved lower QoQ to 78.5% from
80.5% in QE Jun-11.
IndusInd buffered the impact on margins by increasing
the asset yields on a QoQ basis. Yield on corporate
loans went up by 56 bps QoQ to 11.8%. Yield on
consumer loans were broadly stable at 16.4% (given the
fixed rate nature of these loans). However, the
proportion of higher yielding fixed rate consumer loans
increased to 46.7% from 44.7% in QE Jun-11. Yield on
investments also moved up QoQ
Loans grew 6% QoQ, 28% YoY while deposits grew 9%
QoQ, 23% YoY. Consumer loans grew much faster at 11%
QoQ, 44% YoY while corporate loans grew by 2% QoQ,
17% YoY.
Term deposits grew by +10% QoQ and +19% YoY. CA
balances grew by 9% QoQ and +31% YoY; however SA
balances growth was weaker (sequentially) at +2% QoQ
and +40% YoY. As a result, CASA/deposits ratio moved
lower to 27.7% from 28.2% in QE Jun-11.
Core non-interest income grew by 30% YoY, 13% QoQ.
The volatile FX component was strong at +65% YoY, +24%
QoQ. Investment banking income was weak (-20% QoQ,
-57% YoY) – however, management expects momentum to
return in the coming quarters. Excluding FX and investment
banking income, core non-interest income was robust at
+12% QoQ, +34% YoY.
Costs to average assets ratio moved up to 2.65% (+15
bps QoQ) driven by increase in non-employee expenses
(+15% QoQ, +42% YoY). The key driver to the same was
branch expansion – IndusInd opened 24 branches this
quarter (in addition to the 26 opened in the QE Jun-11). The
full cost impact of this filtered through this quarter.
Employee cost trends were stable at 4% QoQ, 21% YoY.
New NPL creation picked up, early signs of stress? New
NPL creation picked up to Rs1,310mn (1.8% of loans,
annualized) from Rs730mn in QE Jun-11.
A bulk of the increase in new NPL creation was in the
commercial or corporate book where slippages increased to
Rs0.7bn from Rs0.16bn last quarter. Here the increase was
driven by one-large account of Rs0.46bn which was sold down
to asset reconstruction company (ARCIL) this quarter in
exchange for security receipts (hence increasing both
additions and reductions from NPLs).
Retail new NPL creation rate was broadly stable at Rs0.6bn (vs
Rs0.57bn last quarter). Management remains confident that it
is not seeing any significant stress building up on the asset
quality side in the retail book.
Gross NPLs were up 8% QoQ, 16% YoY and GNPL ratio was
stable QoQ at 1.09%. LLP/Avg. loans (annualized) was also
broadly stable QoQ at 57 bps. Coverage was at 72% (vs 72.9%
in QE-Jun 11).
Price Target Computation
We arrive at our price target of Rs300 using a probabilityweighted
residual income model. Our key assumptions are
unchanged. We assign weightings of 60% to our base case
value, 20% to our bull case value and 20% to our bear case
value.
We value the stock using a three-phase residual income model
– a five-year high-growth period and a 10-year maturity period,
followed by a declining period. We use a cost of equity of
14.3%, assuming a beta of 1.1, a risk-free rate of 8.5%, and a
market risk premium of 5.5%.
Wtd Price Target 300
Source: Company data, Morgan Stanley Research
Risks to Our Price Target
Key downside risks to our price target include:
slower-than-expected loan growth, a delay in branch
expansion plans, a stagnant CASA ratio, a sharp rise in short
rates, and a significant deterioration in asset quality.
Key upside risks include: As noted, volume growth, margins,
and credit costs still might surprise positively, as could
developments in the liability and fee franchises.
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