Buy IndusInd Bank: ICICI Securities

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Consistently delivering healthy performance…
• IndusInd Bank (IIB) continued it strong performance with profit
growing 30% YoY to | 430 crore vs. our expected | 414 crore
supported by NII of | 833 crore, up 19% YoY vs. 17.9% estimate.
Also, other income of | 558 crore, growing 34% YoY boosted PAT
• Credit traction remained robust growing 22% YoY to | 59930 crore
while deposit growth came far higher at 24.4% YoY to | 65996 crore
• NIM was marginally below expectation at 3.63% (down 3 bps QoQ),
mainly due to higher deposit growth and corporate credit growth of
37% YoY while retail grew just 7% YoY
• Asset quality remained stable with GNPA at | 654 crore (ratio -1.08%)
flat QoQ and NNPA at | 195 crore
Turnaround done successfully; well poised for growth ahead of industry
The current management after taking over in early 2008 has transformed
IndusInd Bank (IIB) from low and volatile B/S growth to steady and
sustainable growth with strong profitability. We like the fact that the
transformation has been a qualitative one (RoA up from 0.3% to 1.8% as
on FY14) despite the turbulent economic scenario. The loans, deposits &
PAT traction improved to 28%, 21% & 63% CAGR over FY08-14 from
12%, 13% and -35% during FY05-08, respectively. The loan & deposit
base, as on Q2FY15, stands at | 59931 crore and | 65996 crore,
respectively. Going ahead, considering the current weak economic
outlook, growth may moderate from past trends but remain ahead of the
industry. We have factored in loan & deposit CAGR of 21% over FY14-16E
while PAT is estimated to increase at 24% CAGR to | 2180 crore.
Margins improve sharply; expected to remain largely steady
IIB maintained calculated NIM of over 3.7% in the past while Q2FY15 NIM
dipped to 3.63% with the rising corporate book. The high yielding loan
book & healthy CASA franchise enable IIB to maintain such strong
margins. In the past six years, IIB’s NIM has improved from 1.7% to 3.7%
as on FY14. Such a structural improvement is primarily on the back of a
substantial improvement in CASA franchise (doubled to >30% in the past
six years), helping keep CoF under control across various cycles. We
expect calculated NIM to stay largely flat YoY at ~4% in FY15E.
Diversified asset book enables superior asset quality
IIB has fared well over the years in terms of asset quality with GNPA ratio
improving from 3.1% in FY08 to 1% by FY11 and stayed at around these
levels currently. The steady performance on the asset quality front is
owing to IIB’s peculiar loan mix. The asset book is evenly divided
between consumer finance (CF) (~80% of which is the high vehicle
financing) and corporate banking (CB) (working capital in nature & well
diversified across industries). Though concerns are being raised about CV
portfolio (17% of the total book), there has been no drastic deterioration
yet. Going ahead, we expect a slight rise in slippages and expect the
GNPA ratio to rise to 1.2% (| 788 crore) by FY15E.
Visibility in earnings much better than peers; maintain BUY
Despite our factoring in a moderation in asset growth coupled with
largely flat margins and a rise in credit cost, our earnings estimate for IIB
is healthy at 24% CAGR over FY14-16E. Expected return ratios of ~18%
RoE and ~1.8% RoA provide comfort. We believe any improvement in
margins and loan growth (especially post Q2FY15E as guided by
management) can lead to higher-than-expected PAT growth. We maintain
BUY recommendation with a target price of | 714.

LINK
http://content.icicidirect.com/mailimages/IDirect_IndusIndBank_Q2FY15.pdf