Indusind Bank: EPS beat on lower loan loss provisions: Nomura Research

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Key highlights:
 Sequential compression in NIM was a result of an increase in other
borrowing costs on longer tenor refinancing at a higher cost to balance
the book. CFD division yields were steady at 16.4% q-q.
 Loan book growth was driven by a 48% increase in consumer finance
loans, while the corporate book increased at 11% y-y.
 Savings deposits increased by 20% q-q helped by a 10% increase in
monthly customer volumes post the savings rate hike.
 Earnings beat driven by lower slippage in corporate book - INR50mn
as compared to INR710mn in the last quarter. Consumer finance
slippage stayed flat at INR630mn. Restructured book was 22bps. YTD
loan loss provisions were 33bps of average loan book.
Takeaways from management call
 Asset quality - IIB hasn’t witnessed any signs of stress on its CV
portfolio, with freight rates holding up and robust operator earnings.
Karnataka exposure is just INR50mn with INR10mn as NPL. There are
no outstanding proposals for restructuring at present. They have also
reduced exposure to the riskier NBFC and construction sector. Only
6% of their corporate exposure is below investment grade.
 Savings deposit traction - IIB currently has over 1.1mn total savings
accounts with the monthly addition moving up to 50,000 from 25,000 in
the corresponding quarter of the previous year.
 CV portfolio breakdown - INR16.2bn of loans towards used CVs out of
total CV exposure of INR75bn. CVs added thus far in FY12: LCV –
12,000; M&HCV – 20,000. Small CV – 30,000 vehicles.
Outlook
 We expect IIB to maintain loan growth in the 25-30% range with the
mix at 50:50 between corporate and consumer finance division.
 Management guided towards loan loss provisions to come in well
below 60bps for FY11. Our current estimates factor in 71bps for FY12;
we will be revisiting our estimates post discussion with IIB.
 Management expects NIMs to have bottomed out with the fixed-rate
consumer book, benefiting them when the rate cycle turns.
 Fee income growth should be strong for Q4FY12F as well.
 IIB may look at raising capital in H2FY13F for their growth needs as
well as for possible basel-3 requirements, according to management.
Valuation
We reiterate our BUY call on the stock. IIB currently trades at 2.4x our
FY13F ABV and 14x our FY13F EPS. Our TP of INR325 implies 3x
FY13F ABV and 17.4x FY13F EPS.