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IndusInd Bank (IIB)
OW: Interesting takeaways on CV cycle and savings rate
CV segment still going strong, mainly due to IIB’s gaining
market share and rural economy’s doing well
Savings rate increase should have a small short-term impact
but long-term neutral; asset quality remains stable
Reiterate Overweight rating with target price of INR362,
which implies a potential return of 45.4%
We met with IndusInd Bank management to pick up key trends in the CV market and their
initial experience on savings rate deregulation.
Commercial vehicle business still going strong: The CV segment for IIB has been
growing at 37% YoY in the current fiscal year, despite moderation in CV cycle.
Management has guided that the growth is likely to remain robust in the current fiscal year,
the key reasons being: (a) PSU banks and marginal NBFCs are exiting the market, helping
incumbents to grow market share, (b) while CV sales usually have had a high correlation
with IIP, incrementally increasing rural prosperity, driven by NREGA* and higher MSPs**
and supporting CV demand; (c) ongoing rural infrastructure projects also have contributed
to CV demand; (d) ongoing shift of market share from railways to roadways is due to
improving road infrastructure; (e) LCV growth remains strong at 20-25% due to last-mile
connectivity’s building up in rural areas; and (f) freight rates have remained firm and
appear likely to remain so, implying continued profitability for truck operators.
Asset quality remains robust: IIB has not seen any major concerns building up on its
loan book. Vehicle portfolio continues to do well with low delinquencies, while corporate
segment is largely working-capital finance, where the book is behaving well. The bank is
looking to build up floating provision buffer over the next few quarters as a countercyclical
measure.
Savings rate increase – small short-term impact, long-term neutral: IIB is one of the
few banks that increased its savings rate to 6%. While it expects a near-term impact on NIM
of ~3-4bps, expected improvement in CASA traction and the recent base-rate hike should
help them remain margin-neutral over 2-3 quarters. Interestingly, bulk SA in the system is
likely to be interest rate-sensitive; however, retail SA should largely be rate-agnostic.
Valuation: IIB is trading at 12-month forward multiples of 12.6x PE and 2.4x PB. We value
IIB at 19x PE and 2.7x PB, thereby retaining our 12-month target price of INR362, implying a
potential return of 45.4%. We reiterate our Overweight rating. We continue to see a structural
growth story unfolding with new drivers emerging over the next few years as it gains size. Key
risks: further policy tightening by RBI and higher-than-expected loan slippages.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IndusInd Bank (IIB)
OW: Interesting takeaways on CV cycle and savings rate
CV segment still going strong, mainly due to IIB’s gaining
market share and rural economy’s doing well
Savings rate increase should have a small short-term impact
but long-term neutral; asset quality remains stable
Reiterate Overweight rating with target price of INR362,
which implies a potential return of 45.4%
We met with IndusInd Bank management to pick up key trends in the CV market and their
initial experience on savings rate deregulation.
Commercial vehicle business still going strong: The CV segment for IIB has been
growing at 37% YoY in the current fiscal year, despite moderation in CV cycle.
Management has guided that the growth is likely to remain robust in the current fiscal year,
the key reasons being: (a) PSU banks and marginal NBFCs are exiting the market, helping
incumbents to grow market share, (b) while CV sales usually have had a high correlation
with IIP, incrementally increasing rural prosperity, driven by NREGA* and higher MSPs**
and supporting CV demand; (c) ongoing rural infrastructure projects also have contributed
to CV demand; (d) ongoing shift of market share from railways to roadways is due to
improving road infrastructure; (e) LCV growth remains strong at 20-25% due to last-mile
connectivity’s building up in rural areas; and (f) freight rates have remained firm and
appear likely to remain so, implying continued profitability for truck operators.
Asset quality remains robust: IIB has not seen any major concerns building up on its
loan book. Vehicle portfolio continues to do well with low delinquencies, while corporate
segment is largely working-capital finance, where the book is behaving well. The bank is
looking to build up floating provision buffer over the next few quarters as a countercyclical
measure.
Savings rate increase – small short-term impact, long-term neutral: IIB is one of the
few banks that increased its savings rate to 6%. While it expects a near-term impact on NIM
of ~3-4bps, expected improvement in CASA traction and the recent base-rate hike should
help them remain margin-neutral over 2-3 quarters. Interestingly, bulk SA in the system is
likely to be interest rate-sensitive; however, retail SA should largely be rate-agnostic.
Valuation: IIB is trading at 12-month forward multiples of 12.6x PE and 2.4x PB. We value
IIB at 19x PE and 2.7x PB, thereby retaining our 12-month target price of INR362, implying a
potential return of 45.4%. We reiterate our Overweight rating. We continue to see a structural
growth story unfolding with new drivers emerging over the next few years as it gains size. Key
risks: further policy tightening by RBI and higher-than-expected loan slippages.
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