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IndusInd Bank (INBK.BO): Outlining blue sky scenario; reiterate Buy
IndusInd Bank a defensive with growth potential, CL Buy
IndusInd Bank has been on our Conviction Buy list since September 1,
2010. Even though it has appreciated significantly over the last two
years by 80%, we keep the stock on our Conviction list as management
remains focused on: (1) expanding its network after restructuring, (2)
building a strong liability franchise, (3) enhancing its profitable retail
assets. We believe IndusInd Bank not only acts as a good defensive in
the current market environment which is plagued by NPL concerns
(INBK’s net NPLs are 0.3% vs 0.2-0.7% for peers, but also provides an
opportunity to participate in structural and cyclical growth. We increased
our earnings estimates for IndusInd Bank for FY13E/FY14E by 2.6% and
3.9% to reflect higher margin on falling rates on wholesale borrowing
(70% of fixed deposit is wholesale).
Blue-sky scenario indicates 50% upside, v/s base case 37%
(including dividend)
Given that IndusInd Bank is in the process of scaling up operations, we
believe it is difficult to fully comprehend and factor in the full benefit of
potential growth in our numbers. We have therefore conducted a bluesky
scenario analysis — employing management’s growth guidance, i.e
for FY14: (1) branch network at 700 vs. 650 GSe, (2) CASA ratio at 35%
vs. 33%, (3) fee income growth CAGR 31% versus 26% (FY12-14E), (4)
loan growth at 34% CAGR FY12-FY14E versus 26.7%, and (5) loan-loss
provisions at 0.7-0.75% vs. 0.8-0.9%. Under this more bullish scenario,
we estimate in FY13 ROA of 1.6% vs. 1.5% in our base case.
Valuation
We maintain our Buy rating (Conviction Buy list) and revise our GS
Camelot-based target price to Rs350 (from Rs340), implying 37% upside
potential. The stock is trading at 2.4X 12m fwd. P/B and 14.1X 12m fwd.
P/E vs. earnings CAGR of 21% in same period over FY12E-FY14E.
In our blue-sky scenario, we see INBK generating ROAs of 1.6% (FY13-
FY14, vs. 1.5% in FY12E), growing earnings at 32% CAGR between FY12-
14E and trading at 12.2X FY13E P/E.
Key risks
Frequent capital raisings, execution risk driving up cost ratios with
network expansion and slowing CV cycle impacting overall loan growth
and margin.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy list
Asia Pacific Conviction Buy list
Coverage View: Neutral
Sector report
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IndusInd Bank (INBK.BO): Outlining blue sky scenario; reiterate Buy
IndusInd Bank a defensive with growth potential, CL Buy
IndusInd Bank has been on our Conviction Buy list since September 1,
2010. Even though it has appreciated significantly over the last two
years by 80%, we keep the stock on our Conviction list as management
remains focused on: (1) expanding its network after restructuring, (2)
building a strong liability franchise, (3) enhancing its profitable retail
assets. We believe IndusInd Bank not only acts as a good defensive in
the current market environment which is plagued by NPL concerns
(INBK’s net NPLs are 0.3% vs 0.2-0.7% for peers, but also provides an
opportunity to participate in structural and cyclical growth. We increased
our earnings estimates for IndusInd Bank for FY13E/FY14E by 2.6% and
3.9% to reflect higher margin on falling rates on wholesale borrowing
(70% of fixed deposit is wholesale).
Blue-sky scenario indicates 50% upside, v/s base case 37%
(including dividend)
Given that IndusInd Bank is in the process of scaling up operations, we
believe it is difficult to fully comprehend and factor in the full benefit of
potential growth in our numbers. We have therefore conducted a bluesky
scenario analysis — employing management’s growth guidance, i.e
for FY14: (1) branch network at 700 vs. 650 GSe, (2) CASA ratio at 35%
vs. 33%, (3) fee income growth CAGR 31% versus 26% (FY12-14E), (4)
loan growth at 34% CAGR FY12-FY14E versus 26.7%, and (5) loan-loss
provisions at 0.7-0.75% vs. 0.8-0.9%. Under this more bullish scenario,
we estimate in FY13 ROA of 1.6% vs. 1.5% in our base case.
Valuation
We maintain our Buy rating (Conviction Buy list) and revise our GS
Camelot-based target price to Rs350 (from Rs340), implying 37% upside
potential. The stock is trading at 2.4X 12m fwd. P/B and 14.1X 12m fwd.
P/E vs. earnings CAGR of 21% in same period over FY12E-FY14E.
In our blue-sky scenario, we see INBK generating ROAs of 1.6% (FY13-
FY14, vs. 1.5% in FY12E), growing earnings at 32% CAGR between FY12-
14E and trading at 12.2X FY13E P/E.
Key risks
Frequent capital raisings, execution risk driving up cost ratios with
network expansion and slowing CV cycle impacting overall loan growth
and margin.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy list
Asia Pacific Conviction Buy list
Coverage View: Neutral
Sector report
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