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IndusInd's 2QFY12 net profit of Rs1.9bn was ahead of our and Street estimates. However, NIMs
and credit quality were under pressure in the quarter. Given our expectations of continued NIM
pressure in the current elevated interest rate scenario, we maintain Hold.
2QFY12 earnings ahead of estimates
IndusInd Bank’s 2QFY12 net profit of Rs1,931m was ahead of our estimates. NII grew 27% yoy
(7% qoq) as loans grew 29% yoy (6% qoq). NIMs at 3.35% were down 6bp both qoq and yoy,
mainly due to an increase in cost of funds. Reported cost of deposits at 8.16% in 2Q rose 45bp
qoq and 217bp yoy. Reported lending yield rose to 13.8% (up 29bp qoq) with yield in the
corporate loan book (53% of loans) at 11.78% (up 56bp qoq) and retail yields at 16.36% (up 4bp
qoq). Reported core fee income rose 13% qoq and 30% yoy. Credit costs as per the bank stood
at 13bp of loans versus 14bp in 1QFY12.
But implied cost of term deposits and borrowings up 110bp qoq
Based on our analysis, IndusInd’s cost of term deposits and borrowings increased by about
110bp qoq to 10.6% in 2QFY12 (see Table 3 on page 4). On a blended basis, the cost of interestbearing
liabilities rose 81bp qoq to 8.4% in 2QFY12. The bank disclosed that it maintained a
larger deposit and borrowing float through 2Q than the quarter-end figure to benefit from short
term arbitrage opportunities. We expect continued margin pressure if interest rates remain at the
current elevated levels.
Deterioration in credit quality
The bank’s gross NPAs rose 8% on a sequential basis (1.09% of loans) and 16% on a yoy basis
to Rs3.3bn. Delinquencies in 2Q stood at Rs1.3bn (0.56% of loans on a one-year lag and 2.2%
on an annualised basis), with delinquencies in the corporate book rising to Rs710m (0.52% of
corporate loans on a one-year lag) and Rs600m (0.61% of retail loans on a one-year lag). The
bank was confident of maintaining credit quality through the rest of the year . Recovery stood at
Rs1.1bn (46bp of loans as of September 2011).
Expensive valuations and likely margin pressure; we maintain Hold
IndusInd trades at 2.9x FY12F adjusted BV and 17.3x FY12F earnings, a 38% premium to close
peer Yes Bank (Buy, 44% potential upside) on one-year forward BV and a sizeable 60% premium
on FY12F earnings. Our EVA™-based target price of IndusInd is Rs301. We maintain Hold.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IndusInd's 2QFY12 net profit of Rs1.9bn was ahead of our and Street estimates. However, NIMs
and credit quality were under pressure in the quarter. Given our expectations of continued NIM
pressure in the current elevated interest rate scenario, we maintain Hold.
2QFY12 earnings ahead of estimates
IndusInd Bank’s 2QFY12 net profit of Rs1,931m was ahead of our estimates. NII grew 27% yoy
(7% qoq) as loans grew 29% yoy (6% qoq). NIMs at 3.35% were down 6bp both qoq and yoy,
mainly due to an increase in cost of funds. Reported cost of deposits at 8.16% in 2Q rose 45bp
qoq and 217bp yoy. Reported lending yield rose to 13.8% (up 29bp qoq) with yield in the
corporate loan book (53% of loans) at 11.78% (up 56bp qoq) and retail yields at 16.36% (up 4bp
qoq). Reported core fee income rose 13% qoq and 30% yoy. Credit costs as per the bank stood
at 13bp of loans versus 14bp in 1QFY12.
But implied cost of term deposits and borrowings up 110bp qoq
Based on our analysis, IndusInd’s cost of term deposits and borrowings increased by about
110bp qoq to 10.6% in 2QFY12 (see Table 3 on page 4). On a blended basis, the cost of interestbearing
liabilities rose 81bp qoq to 8.4% in 2QFY12. The bank disclosed that it maintained a
larger deposit and borrowing float through 2Q than the quarter-end figure to benefit from short
term arbitrage opportunities. We expect continued margin pressure if interest rates remain at the
current elevated levels.
Deterioration in credit quality
The bank’s gross NPAs rose 8% on a sequential basis (1.09% of loans) and 16% on a yoy basis
to Rs3.3bn. Delinquencies in 2Q stood at Rs1.3bn (0.56% of loans on a one-year lag and 2.2%
on an annualised basis), with delinquencies in the corporate book rising to Rs710m (0.52% of
corporate loans on a one-year lag) and Rs600m (0.61% of retail loans on a one-year lag). The
bank was confident of maintaining credit quality through the rest of the year . Recovery stood at
Rs1.1bn (46bp of loans as of September 2011).
Expensive valuations and likely margin pressure; we maintain Hold
IndusInd trades at 2.9x FY12F adjusted BV and 17.3x FY12F earnings, a 38% premium to close
peer Yes Bank (Buy, 44% potential upside) on one-year forward BV and a sizeable 60% premium
on FY12F earnings. Our EVA™-based target price of IndusInd is Rs301. We maintain Hold.
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