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IndusInd Bank's 3QFY12 PAT grew 34% to INR2.1b (2% above estimate). Reported margins declined by ~10bp QoQ
(in-line with estimate) to 3.25% led by increase in cost of funds (+8bp QoQ) on back of higher bulk borrowing cost
in 3Q and marginal decline in Yield on loans (2bp QoQ). Key Highlights:
GNPA remains flat QoQ: Slippages during the quarter amounted to INR680m (annualized slippage ratio stood
at 1.09%). In absolute terms, GNPA was flat QoQ at INR3.3b; in % terms, GNPA declined 7bp QoQ to 1.02%.
NNPA stood at 0.29%. Credit cost for the quarter (annualized) stood at 35bp.
Loan growth remains strong; CD ratio improves 140bp: Loans grew at ~8% QoQ and 30% YoY to ~INR324b, led
by strong growth in high-yielding CFD (+11% QoQ and 48% YoY). Share of consumer finance book has increased
further to 48.4% from 46.7% a quarter ago and 42.3% a year ago. CD ratio improved 140bp QoQ to 80%.
Savings deposits grow 21% QoQ; CASA ratio declines QoQ: CASA deposits grew marginally by 1% QoQ and 31%
YoY. CASA ratio moderated by 118bp to 26.5% led by moderation in CA deposits (down 8% QoQ). Increased
focus on savings bank accounts coupled with savings bank deregulation, led to growth of +21% QoQ.
Traction in fee income continues: Non-interest income grew 35% YoY to INR2.7b led by traction in Fee income
(up 46% YoY and 18% QoQ to INR2.5b). Fee income growth remained strong across all categories.
Valuations and view: Strong improvement in core operating performance, superior margins and faster than
expected turnaround of operations demonstrate the management's execution skills. The stock trades at 2.7x
FY12E BV and 2.3x FY13E BV. Maintain Buy with a target price of INR335 (3x FY13E BV).
Margins decline QoQ by ~10bp (in-line with est)
Reported margins declined ~10bp led by a) Increase in cost of funds (+8bp QoQ) on
the back of higher bulk borrowing cost in 3Q and (b) marginal decline in Yield on loans
(2bp QoQ) despite higher growth in Consumer finance book, due to run down of
some high yielding construction loans. Cost of deposits remained flat QoQ at 8.16%.
GNPA remains flat QoQ
Slippages during the quarter amounted to INR680m vs INR1.3b a quarter ago
(annualized slippage ratio stood at 1.09%). In absolute terms, GNPA was flat QoQ at
INR3.3b; in % terms, GNPA declined 7bp QoQ to 1.02%. NNPA also remained flat QoQ
at INR0.9b, improving marginally QoQ to 0.29%. Credit cost for the quarter (annualized)
stood at 35bp. Management plans to contain credit cost below 70bp for FY12. We
model slippage ratio of 1.5% in FY12 and 1.8% in FY13.
Business growth remains strong; CD ratio improves 140bp
Business growth remained strong (up 7% QoQ and 31% YoY). Loans grew at ~8% QoQ
and 30% YoY to ~INR324b, led by high-yielding consumer finance division (CFD) (+11%
QoQ and 48% YoY). Share of consumer finance book has increased further to 48.4%
from 46.7% a quarter ago and 42.3% a year ago. Growth was 30%+ YTD across categories
in CFD. Deposits grew by ~6% QoQ (up 32% YoY), in line with loans. As a result, CD ratio
improved 140bp QoQ to 79.95%. Management targets a loan growth of 25-30% for
FY12 and intends to maintain CD ratio in the range of 75-80%. Niche positioning in CV
financing, branch expansion, increased focus on small and mid corporate clients, and
strong relationships with large corporate clients should enable IIB to sustain higher
than industry loan growth.
CFD driving QoQ loan growth
During the quarter, loan growth was driven by high yielding CFD (up 11% QoQ and 48%
YoY). The growth in consumer segment was broad based with all of its sub-segment
(CV, utility, car, two-wheeler and equipment financing) growing at 10-15% QoQ. Other
retail loans increased 22% QoQ to INR6.7b, with home loans increasing 41% QoQ to
INR4.4b. Growth in corporate and commercial banking was modest at 4% QoQ.
CASA growth moderates; CASA ratio declines QoQ
CASA deposits grew marginally by 1% QoQ and 31% YoY. CASA ratio moderated sharply
by 118bp to 26.5%. During the quarter, as a result of savings bank deregulation, the
bank increased its savings rate to 5.5% on deposits of up to INR0.1m and 6% on deposits
over INR0.1m . This increase, coupled with continued focus on SA, led to SA deposits
improving 21% QoQ and 54% YoY. However, CA deposit growth moderated by 8% QoQ
(up 20% YoY), sluggish capital markets being the key reason for the muted CA
performance.
Traction in fee income continues
Non-interest income grew 35% YoY to INR2.7b led by traction in Fee income (up 46%
YoY and 18% QoQ to INR2.5b). Fee income growth remained strong across all categories.
Forex income grew 84% YoY to INR601m (INR523m in 2QFY12 and INR327m a year ago),
though investment banking fees declined 25% YoY to INR213m. Trading profits declined
45% QoQ and YoY to INR131m (INR240m a year ago and INR239m a year ago).
Other details
(a) Capital adequacy ratio stood at 13.4% with tier I at 10.7% (Tier I - 12.35% including
9MFY12 profits) (b) Momentum in branch expansion continues with bank adding 15
branches during the quarter. Cost to core income remained largely stable at ~51%.
Valuations and view
Strong improvement in core operating performance and faster than expected
turnaround of operations demonstrate the management's execution skills. Superior
margins, focused fee income strategy and control over C/I ratio will keep core
operating profitability strong. Improving liability franchise, structural improvement
in RoA and 25%+ asset growth should help IIB to post one of the highest PAT CAGR
amongst the banks under our coverage.
Going forward, key thing to be watched would be asset quality due to moderation in
economic growth, higher share and strong growth in vehicle finance (50% of which CV
financing) book. We model slippage ratio of 1.5% in FY12 and 1.8% in FY13 vs 0.9% in
FY11 and credit cost is estimated at ~0.6% and 0.95% for FY12 and FY13 respectively.
While the credit cost is likely to increase in FY13, NIMs also has levers to improve in
the falling interest rate scenario (due to fixed rate assets and higher share of bulk
deposits).
We expect RoA to remain strong at 1.5%+ over FY11-13. However, on account of equity
dilution in 3QFY11, RoEs would be subdued at ~19% for FY12E and ~20% for FY13E. The
stock trades at 2.7x FY12E BV and 2.3x FY13E BV. Maintain Buy with a target price of
INR335 (3x FY13E BV).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IndusInd Bank's 3QFY12 PAT grew 34% to INR2.1b (2% above estimate). Reported margins declined by ~10bp QoQ
(in-line with estimate) to 3.25% led by increase in cost of funds (+8bp QoQ) on back of higher bulk borrowing cost
in 3Q and marginal decline in Yield on loans (2bp QoQ). Key Highlights:
GNPA remains flat QoQ: Slippages during the quarter amounted to INR680m (annualized slippage ratio stood
at 1.09%). In absolute terms, GNPA was flat QoQ at INR3.3b; in % terms, GNPA declined 7bp QoQ to 1.02%.
NNPA stood at 0.29%. Credit cost for the quarter (annualized) stood at 35bp.
Loan growth remains strong; CD ratio improves 140bp: Loans grew at ~8% QoQ and 30% YoY to ~INR324b, led
by strong growth in high-yielding CFD (+11% QoQ and 48% YoY). Share of consumer finance book has increased
further to 48.4% from 46.7% a quarter ago and 42.3% a year ago. CD ratio improved 140bp QoQ to 80%.
Savings deposits grow 21% QoQ; CASA ratio declines QoQ: CASA deposits grew marginally by 1% QoQ and 31%
YoY. CASA ratio moderated by 118bp to 26.5% led by moderation in CA deposits (down 8% QoQ). Increased
focus on savings bank accounts coupled with savings bank deregulation, led to growth of +21% QoQ.
Traction in fee income continues: Non-interest income grew 35% YoY to INR2.7b led by traction in Fee income
(up 46% YoY and 18% QoQ to INR2.5b). Fee income growth remained strong across all categories.
Valuations and view: Strong improvement in core operating performance, superior margins and faster than
expected turnaround of operations demonstrate the management's execution skills. The stock trades at 2.7x
FY12E BV and 2.3x FY13E BV. Maintain Buy with a target price of INR335 (3x FY13E BV).
Margins decline QoQ by ~10bp (in-line with est)
Reported margins declined ~10bp led by a) Increase in cost of funds (+8bp QoQ) on
the back of higher bulk borrowing cost in 3Q and (b) marginal decline in Yield on loans
(2bp QoQ) despite higher growth in Consumer finance book, due to run down of
some high yielding construction loans. Cost of deposits remained flat QoQ at 8.16%.
GNPA remains flat QoQ
Slippages during the quarter amounted to INR680m vs INR1.3b a quarter ago
(annualized slippage ratio stood at 1.09%). In absolute terms, GNPA was flat QoQ at
INR3.3b; in % terms, GNPA declined 7bp QoQ to 1.02%. NNPA also remained flat QoQ
at INR0.9b, improving marginally QoQ to 0.29%. Credit cost for the quarter (annualized)
stood at 35bp. Management plans to contain credit cost below 70bp for FY12. We
model slippage ratio of 1.5% in FY12 and 1.8% in FY13.
Business growth remains strong; CD ratio improves 140bp
Business growth remained strong (up 7% QoQ and 31% YoY). Loans grew at ~8% QoQ
and 30% YoY to ~INR324b, led by high-yielding consumer finance division (CFD) (+11%
QoQ and 48% YoY). Share of consumer finance book has increased further to 48.4%
from 46.7% a quarter ago and 42.3% a year ago. Growth was 30%+ YTD across categories
in CFD. Deposits grew by ~6% QoQ (up 32% YoY), in line with loans. As a result, CD ratio
improved 140bp QoQ to 79.95%. Management targets a loan growth of 25-30% for
FY12 and intends to maintain CD ratio in the range of 75-80%. Niche positioning in CV
financing, branch expansion, increased focus on small and mid corporate clients, and
strong relationships with large corporate clients should enable IIB to sustain higher
than industry loan growth.
CFD driving QoQ loan growth
During the quarter, loan growth was driven by high yielding CFD (up 11% QoQ and 48%
YoY). The growth in consumer segment was broad based with all of its sub-segment
(CV, utility, car, two-wheeler and equipment financing) growing at 10-15% QoQ. Other
retail loans increased 22% QoQ to INR6.7b, with home loans increasing 41% QoQ to
INR4.4b. Growth in corporate and commercial banking was modest at 4% QoQ.
CASA growth moderates; CASA ratio declines QoQ
CASA deposits grew marginally by 1% QoQ and 31% YoY. CASA ratio moderated sharply
by 118bp to 26.5%. During the quarter, as a result of savings bank deregulation, the
bank increased its savings rate to 5.5% on deposits of up to INR0.1m and 6% on deposits
over INR0.1m . This increase, coupled with continued focus on SA, led to SA deposits
improving 21% QoQ and 54% YoY. However, CA deposit growth moderated by 8% QoQ
(up 20% YoY), sluggish capital markets being the key reason for the muted CA
performance.
Traction in fee income continues
Non-interest income grew 35% YoY to INR2.7b led by traction in Fee income (up 46%
YoY and 18% QoQ to INR2.5b). Fee income growth remained strong across all categories.
Forex income grew 84% YoY to INR601m (INR523m in 2QFY12 and INR327m a year ago),
though investment banking fees declined 25% YoY to INR213m. Trading profits declined
45% QoQ and YoY to INR131m (INR240m a year ago and INR239m a year ago).
Other details
(a) Capital adequacy ratio stood at 13.4% with tier I at 10.7% (Tier I - 12.35% including
9MFY12 profits) (b) Momentum in branch expansion continues with bank adding 15
branches during the quarter. Cost to core income remained largely stable at ~51%.
Valuations and view
Strong improvement in core operating performance and faster than expected
turnaround of operations demonstrate the management's execution skills. Superior
margins, focused fee income strategy and control over C/I ratio will keep core
operating profitability strong. Improving liability franchise, structural improvement
in RoA and 25%+ asset growth should help IIB to post one of the highest PAT CAGR
amongst the banks under our coverage.
Going forward, key thing to be watched would be asset quality due to moderation in
economic growth, higher share and strong growth in vehicle finance (50% of which CV
financing) book. We model slippage ratio of 1.5% in FY12 and 1.8% in FY13 vs 0.9% in
FY11 and credit cost is estimated at ~0.6% and 0.95% for FY12 and FY13 respectively.
While the credit cost is likely to increase in FY13, NIMs also has levers to improve in
the falling interest rate scenario (due to fixed rate assets and higher share of bulk
deposits).
We expect RoA to remain strong at 1.5%+ over FY11-13. However, on account of equity
dilution in 3QFY11, RoEs would be subdued at ~19% for FY12E and ~20% for FY13E. The
stock trades at 2.7x FY12E BV and 2.3x FY13E BV. Maintain Buy with a target price of
INR335 (3x FY13E BV).
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