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Core liability driven growth strategy; superior return ratios
Strong execution; Earnings CAGR of ~28%
IndusInd Bank's (IIB) new management team, led by Managing Director Mr Romesh Sobti, took
charge in February 2008. Since then, it has been making structural and operational changes to
improve productivity and efficiency, leading to strong improvement in core operating performance.
Having achieved RoA of ~1.5%, we believe the management's focus will now be on scalability.
Retail liability driven growth strategy: IIB's branch network has increased by ~80% over the past two
years to ~325, and the management plans to add 100 branches every year. In the initial phase of turnaround
strong corporate relationship of new management led to high CA growth and improved CASA ratio.
Investment in technology, manpower, innovative products should lead to higher SA traction going forward.
CASA ratio is expected to improve from 27.2% in FY11 to 31% in FY13.
Sharp increase in fee income : Under-utilized branch network, technological lag, lack of new product
rollouts, and low branch accountability resulted in fee income CAGR of just 12% over FY05-08. To grow
fee income, the new management has put in place a dedicated team and introduced newer products. We
model in fee income CAGR of 40% over FY11-13.
Capitalizing on niche presence; growth to remain above industry: IIB is capitalizing on its niche
presence in CV financing space and is using the management relationships to bolster corporate loan
growth. Over FY11-13, IIB will continue to gain market share aided by focus on core retail liabilities.
Increase in high yielding CV loans and low cost CASA deposits will ensure that its NIMs at 3.5% levels
remain among the highest in the industry.
Superior return ratios; earnings CAGR of 28%: Superior margins, focused fee income strategy and
control over C/I ratio will keep core operating profits CAGR strong at 30%, again one of the highest among
banks under our coverage. We expect RoA to remain strong at ~1.5% over FY11-13. Buy with a target
price of INR330.
Market share gain to continue; CASA a key focus area
Loan growth to remain above industry led by
niche presence in CV financing. As of 1QFY12,
IIB Retail loans were 45% and rest was
corporate. Management plans to increase retail
share to 50% led by improvement in share of
CV loans (new and old) and credit card business.
New customer acquisition, branch rollout, strong
corporate relationship leading to incrementally
higher share of CASA. Strong branch rollout
and brand acceptance will increase share of
savings deposits leading to higher CASA ratio.
Management's execution on CASA deposits is
commendable with quarterly improvement in
ratio by ~1%.
Improved technology platform, new product
launches, new initiatives to drive fee income
growth. Third party distribution, investment
banking fees and forex has shown a strong
traction over last few quarters.
Funding high yielding fixed rate retail loans with
low cost deposits and matched bulk business
(bulk deposits funded short term working capital
corporate loans) led to sustainable improvement
in margins to ~4%. RoAs are likely to remain
superior helped by improving share of fees and
controlled opex.
As of 1QFY12, Loans grew ~8% QoQ (31%
YoY) to ~INR284b. The management is
targeting loan growth of 25-30% for FY12.
Niche positioning in CV financing, branch
expansion, increased focus on small and mid
corporate clients, and strong relationships with
large corporate clients should enable IIB to
sustain higher than industry loan growth.
Investment in technology, manpower, innovative
products will lead to higher SA traction ahead.
In its three-year vision, the management has
guided to improve its CASA ratio to 35% by
FY14, led by increase in SA deposits.
Management is targeting to improve/maintain
its margin with the higher share of vehicle loans,
credit cards in the incremental loan growth.
Expected stability/fall in interest rates also augurs
well for IIB due to higher share of bulk deposits
in the balance sheet.
Despite being in an investment mode,
management had aggressively provided for
NPAs and improved the return profile. PCR has
improved sharply to 70%+. However, high
interest rate scenario and slowdown in CV sales
growth could lead to pressure on asset quality
ahead.
1QFY12: Structural improvement in margins; sharp fall in GNPA and increase in PCR
As of 1QFY12, Loans grew ~8% QoQ (31%
YoY) to ~INR284b. The management is
targeting loan growth of 25-30% for FY12.
Niche positioning in CV financing, branch
expansion, increased focus on small and mid
corporate clients, and strong relationships with
large corporate clients should enable IIB to
sustain higher than industry loan growth.
Investment in technology, manpower, innovative
products will lead to higher SA traction ahead.
In its three-year vision, the management has
guided to improve its CASA ratio to 35% by
FY14, led by increase in SA deposits.
Management is targeting to improve/maintain
its margin with the higher share of vehicle loans,
credit cards in the incremental loan growth.
Expected stability/fall in interest rates also augurs
well for IIB due to higher share of bulk deposits
in the balance sheet.
Despite being in an investment mode,
management had aggressively provided for
NPAs and improved the return profile. PCR has
improved sharply to 70%+. However, high
interest rate scenario and slowdown in CV sales
growth could lead to pressure on asset quality
ahead.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Core liability driven growth strategy; superior return ratios
Strong execution; Earnings CAGR of ~28%
IndusInd Bank's (IIB) new management team, led by Managing Director Mr Romesh Sobti, took
charge in February 2008. Since then, it has been making structural and operational changes to
improve productivity and efficiency, leading to strong improvement in core operating performance.
Having achieved RoA of ~1.5%, we believe the management's focus will now be on scalability.
Retail liability driven growth strategy: IIB's branch network has increased by ~80% over the past two
years to ~325, and the management plans to add 100 branches every year. In the initial phase of turnaround
strong corporate relationship of new management led to high CA growth and improved CASA ratio.
Investment in technology, manpower, innovative products should lead to higher SA traction going forward.
CASA ratio is expected to improve from 27.2% in FY11 to 31% in FY13.
Sharp increase in fee income : Under-utilized branch network, technological lag, lack of new product
rollouts, and low branch accountability resulted in fee income CAGR of just 12% over FY05-08. To grow
fee income, the new management has put in place a dedicated team and introduced newer products. We
model in fee income CAGR of 40% over FY11-13.
Capitalizing on niche presence; growth to remain above industry: IIB is capitalizing on its niche
presence in CV financing space and is using the management relationships to bolster corporate loan
growth. Over FY11-13, IIB will continue to gain market share aided by focus on core retail liabilities.
Increase in high yielding CV loans and low cost CASA deposits will ensure that its NIMs at 3.5% levels
remain among the highest in the industry.
Superior return ratios; earnings CAGR of 28%: Superior margins, focused fee income strategy and
control over C/I ratio will keep core operating profits CAGR strong at 30%, again one of the highest among
banks under our coverage. We expect RoA to remain strong at ~1.5% over FY11-13. Buy with a target
price of INR330.
Market share gain to continue; CASA a key focus area
Loan growth to remain above industry led by
niche presence in CV financing. As of 1QFY12,
IIB Retail loans were 45% and rest was
corporate. Management plans to increase retail
share to 50% led by improvement in share of
CV loans (new and old) and credit card business.
New customer acquisition, branch rollout, strong
corporate relationship leading to incrementally
higher share of CASA. Strong branch rollout
and brand acceptance will increase share of
savings deposits leading to higher CASA ratio.
Management's execution on CASA deposits is
commendable with quarterly improvement in
ratio by ~1%.
Improved technology platform, new product
launches, new initiatives to drive fee income
growth. Third party distribution, investment
banking fees and forex has shown a strong
traction over last few quarters.
Funding high yielding fixed rate retail loans with
low cost deposits and matched bulk business
(bulk deposits funded short term working capital
corporate loans) led to sustainable improvement
in margins to ~4%. RoAs are likely to remain
superior helped by improving share of fees and
controlled opex.
As of 1QFY12, Loans grew ~8% QoQ (31%
YoY) to ~INR284b. The management is
targeting loan growth of 25-30% for FY12.
Niche positioning in CV financing, branch
expansion, increased focus on small and mid
corporate clients, and strong relationships with
large corporate clients should enable IIB to
sustain higher than industry loan growth.
Investment in technology, manpower, innovative
products will lead to higher SA traction ahead.
In its three-year vision, the management has
guided to improve its CASA ratio to 35% by
FY14, led by increase in SA deposits.
Management is targeting to improve/maintain
its margin with the higher share of vehicle loans,
credit cards in the incremental loan growth.
Expected stability/fall in interest rates also augurs
well for IIB due to higher share of bulk deposits
in the balance sheet.
Despite being in an investment mode,
management had aggressively provided for
NPAs and improved the return profile. PCR has
improved sharply to 70%+. However, high
interest rate scenario and slowdown in CV sales
growth could lead to pressure on asset quality
ahead.
1QFY12: Structural improvement in margins; sharp fall in GNPA and increase in PCR
As of 1QFY12, Loans grew ~8% QoQ (31%
YoY) to ~INR284b. The management is
targeting loan growth of 25-30% for FY12.
Niche positioning in CV financing, branch
expansion, increased focus on small and mid
corporate clients, and strong relationships with
large corporate clients should enable IIB to
sustain higher than industry loan growth.
Investment in technology, manpower, innovative
products will lead to higher SA traction ahead.
In its three-year vision, the management has
guided to improve its CASA ratio to 35% by
FY14, led by increase in SA deposits.
Management is targeting to improve/maintain
its margin with the higher share of vehicle loans,
credit cards in the incremental loan growth.
Expected stability/fall in interest rates also augurs
well for IIB due to higher share of bulk deposits
in the balance sheet.
Despite being in an investment mode,
management had aggressively provided for
NPAs and improved the return profile. PCR has
improved sharply to 70%+. However, high
interest rate scenario and slowdown in CV sales
growth could lead to pressure on asset quality
ahead.
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