Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IndusInd Bank (IIB)
Banks/Financial Institutions
No early warning signs as yet. IndusInd Bank delivered another strong quarter with
earnings growth of 34% yoy driven by strong fee income growth and lower-thanexpected
provisions. We don’t see any signs of stress (slippages at 1%) despite increase
in the share of vehicle loans in the portfolio. We find more upside than downside risks
to our estimates as we build conservative estimates on NIMs and factor high credit
costs. Maintain earnings and retain BUY with TP at `325 (unchanged), valuing at 3.0X
book and 18X EPS for RoEs of about 18% and over 20% EPS growth for FY2011-13E.
Well-positioned to weather a storm; maintain BUY
We believe that IndusInd Bank has positioned its earnings extremely well for the next two years,
though we remain conservative in our estimates. A combination of (1) decline in funding costs
from here and (2) higher proportion of fixed-rate high-yielding loan portfolio booked in recent
quarters should (1) expand NIMs from current levels of 3.3%, (2) offset the higher credit costs that
could likely emerge from the increased risk that the bank is taking in its balance sheet, and (3) shift
focus towards low-risk corporate loan portfolio and reduce the mismatch that has emerged today
between higher share of fixed loan portfolio and floating liability profile. CASA improvement
remains a key challenge and the quarter saw overall current account balances declining but was
offset by higher savings balances – partially led by increase in interest rates for these deposits.
We maintain our BUY rating with a target price of `325, giving an upside of about 25% from
current levels. We are valuing the bank at 3X book and 18X FY2013E EPS delivering EPS growth of
about 20% CAGR and RoEs in the range of 18% for FY2011-13E.
Setting up for a margin-expansion cycle as cost of deposits declines
We believe that IndusInd Bank has now positioned its portfolio quite well to play the marginexpansion
cycle led by a decline in deposit costs. The bank has significantly increased its exposure
in the high-yielding vehicle financing business which will enable the bank to expand margins even
if there is strong margin pressure emerging on the corporate business front.
For the quarter, NIMs declined 10 bps qoq as lending yields in the corporate portfolio declined.
Cost of deposits was flat qoq despite the bank taking advantage of foreign currency borrowings
and various rediscounting schemes. However, we believe that costs have peaked for the bank.
Yields on the corporate loan portfolio declined 33 bps qoq while investment yields (calc) improved
40 bps qoq. CD ratio was flat at 78% for the quarter.
No slowdown in overall business growth; share of vehicle loans at 46% of loans
Overall loan growth for the quarter was well above industry average at 30% yoy driven by
48% yoy growth in retail loans and 16% yoy growth in non-retail segment. The bank
continues to underwrite a higher share of loans in the riskier commercial vehicle loan
portfolio despite underlying macro trends suggesting weakness in industrial activity. Overall
vehicle loan portfolio grew by 44% yoy (10% qoq). The management continues to remain
fairly positive in the underlying slippage performance across all its retail products which is
diving the confidence for loan growth in this segment. Since FY2010, contribution of vehicle
loan to overall loan portfolio has increased by about 670 bps to 46% of loans. Of this, used
vehicle financing is currently about 11% of the overall vehicle loans (5% of overall loans).
We broadly maintain our positive outlook on loan growth for the bank at 19% CAGR for
FY2011-13E, given the relatively smaller balance sheet size of the bank, the attractiveness of
the target segments and new initiatives in used vehicle loans, loans against property and
credit cards.
Slippages at 1%—retail slippages better than expected at 1.7% levels
Gross NPLs for the quarter was flat qoq at `3.3 bn (1% of loans) as slippages in the
corporate segment were negligible while performance of the retail portfolio was better than
expected. Slowdown in economic environment and increasing share of used vehicle loan
portfolio have not resulted in higher slippages. Net NPLs were flat at `936 mn (0.3% of
loans). Overall slippages for the quarter were at 0.9% with slippages in corporate loans at
10 bps while retail loan slippages were marginally lower than the previous quarter at about
1.7%. Loan-loss provisions (annualized) were at 0.5% for the quarter.
For FY2012-13E, we are building slippages at 1.7% (0.9% in FY2011) and loan-loss
provisions to increase to 1.1-1.2% from 0.5% in FY2012E.
Fee income growth impressive at 45% yoy
Non-interest income grew impressively by 35% yoy to `2.7 bn on the back of strong
performance in core fee income. Core fee grew 45% yoy with nearly all sub-segments of fee
income showing strong performance. We are building fee income to grow by 20% CAGR
for FY2011-13E.
Other highlights for the quarter
�� CASA ratio declined for the quarter to 27% as compared to 28% in 2QFY12 largely due
to sharp decline in current account balances (8% qoq decline). Sequentially, the bank has
witnessed strong improvement in savings account balances (21% qoq growth). We
believe that the bank has benefitted positively from the recent de-regulation though we
would wait for a few more quarters till a consistent trend emerges.
�� Cost-income ratio was at 50%, marginally higher than our estimates with overall
operating costs increasing by 29% yoy. Given the higher share of retail business, we
broadly expect this ratio to be maintained at current levels. The bank opened 15 branches
and 8 ATMs for the quarter, taking the total branch network to 365 and ATMs to 674.
�� Capital adequacy ratio stands at 13.4% with tier-1 currently at 10.7%. Given the current
headroom and healthy return ratios, we believe that the current capital position is
comfortable for near-term growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IndusInd Bank (IIB)
Banks/Financial Institutions
No early warning signs as yet. IndusInd Bank delivered another strong quarter with
earnings growth of 34% yoy driven by strong fee income growth and lower-thanexpected
provisions. We don’t see any signs of stress (slippages at 1%) despite increase
in the share of vehicle loans in the portfolio. We find more upside than downside risks
to our estimates as we build conservative estimates on NIMs and factor high credit
costs. Maintain earnings and retain BUY with TP at `325 (unchanged), valuing at 3.0X
book and 18X EPS for RoEs of about 18% and over 20% EPS growth for FY2011-13E.
Well-positioned to weather a storm; maintain BUY
We believe that IndusInd Bank has positioned its earnings extremely well for the next two years,
though we remain conservative in our estimates. A combination of (1) decline in funding costs
from here and (2) higher proportion of fixed-rate high-yielding loan portfolio booked in recent
quarters should (1) expand NIMs from current levels of 3.3%, (2) offset the higher credit costs that
could likely emerge from the increased risk that the bank is taking in its balance sheet, and (3) shift
focus towards low-risk corporate loan portfolio and reduce the mismatch that has emerged today
between higher share of fixed loan portfolio and floating liability profile. CASA improvement
remains a key challenge and the quarter saw overall current account balances declining but was
offset by higher savings balances – partially led by increase in interest rates for these deposits.
We maintain our BUY rating with a target price of `325, giving an upside of about 25% from
current levels. We are valuing the bank at 3X book and 18X FY2013E EPS delivering EPS growth of
about 20% CAGR and RoEs in the range of 18% for FY2011-13E.
Setting up for a margin-expansion cycle as cost of deposits declines
We believe that IndusInd Bank has now positioned its portfolio quite well to play the marginexpansion
cycle led by a decline in deposit costs. The bank has significantly increased its exposure
in the high-yielding vehicle financing business which will enable the bank to expand margins even
if there is strong margin pressure emerging on the corporate business front.
For the quarter, NIMs declined 10 bps qoq as lending yields in the corporate portfolio declined.
Cost of deposits was flat qoq despite the bank taking advantage of foreign currency borrowings
and various rediscounting schemes. However, we believe that costs have peaked for the bank.
Yields on the corporate loan portfolio declined 33 bps qoq while investment yields (calc) improved
40 bps qoq. CD ratio was flat at 78% for the quarter.
No slowdown in overall business growth; share of vehicle loans at 46% of loans
Overall loan growth for the quarter was well above industry average at 30% yoy driven by
48% yoy growth in retail loans and 16% yoy growth in non-retail segment. The bank
continues to underwrite a higher share of loans in the riskier commercial vehicle loan
portfolio despite underlying macro trends suggesting weakness in industrial activity. Overall
vehicle loan portfolio grew by 44% yoy (10% qoq). The management continues to remain
fairly positive in the underlying slippage performance across all its retail products which is
diving the confidence for loan growth in this segment. Since FY2010, contribution of vehicle
loan to overall loan portfolio has increased by about 670 bps to 46% of loans. Of this, used
vehicle financing is currently about 11% of the overall vehicle loans (5% of overall loans).
We broadly maintain our positive outlook on loan growth for the bank at 19% CAGR for
FY2011-13E, given the relatively smaller balance sheet size of the bank, the attractiveness of
the target segments and new initiatives in used vehicle loans, loans against property and
credit cards.
Slippages at 1%—retail slippages better than expected at 1.7% levels
Gross NPLs for the quarter was flat qoq at `3.3 bn (1% of loans) as slippages in the
corporate segment were negligible while performance of the retail portfolio was better than
expected. Slowdown in economic environment and increasing share of used vehicle loan
portfolio have not resulted in higher slippages. Net NPLs were flat at `936 mn (0.3% of
loans). Overall slippages for the quarter were at 0.9% with slippages in corporate loans at
10 bps while retail loan slippages were marginally lower than the previous quarter at about
1.7%. Loan-loss provisions (annualized) were at 0.5% for the quarter.
For FY2012-13E, we are building slippages at 1.7% (0.9% in FY2011) and loan-loss
provisions to increase to 1.1-1.2% from 0.5% in FY2012E.
Fee income growth impressive at 45% yoy
Non-interest income grew impressively by 35% yoy to `2.7 bn on the back of strong
performance in core fee income. Core fee grew 45% yoy with nearly all sub-segments of fee
income showing strong performance. We are building fee income to grow by 20% CAGR
for FY2011-13E.
Other highlights for the quarter
�� CASA ratio declined for the quarter to 27% as compared to 28% in 2QFY12 largely due
to sharp decline in current account balances (8% qoq decline). Sequentially, the bank has
witnessed strong improvement in savings account balances (21% qoq growth). We
believe that the bank has benefitted positively from the recent de-regulation though we
would wait for a few more quarters till a consistent trend emerges.
�� Cost-income ratio was at 50%, marginally higher than our estimates with overall
operating costs increasing by 29% yoy. Given the higher share of retail business, we
broadly expect this ratio to be maintained at current levels. The bank opened 15 branches
and 8 ATMs for the quarter, taking the total branch network to 365 and ATMs to 674.
�� Capital adequacy ratio stands at 13.4% with tier-1 currently at 10.7%. Given the current
headroom and healthy return ratios, we believe that the current capital position is
comfortable for near-term growth.
No comments:
Post a Comment