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The bank reported excellent net profit of Rs180 crore (up 52% y-o-y and 4.9% q-o-q), in line
with our expectation and broad market consensus. NII grew 31.9% y-o-y but muted 0.5% q-o-q
due to higher-than-expected margin contraction during the quarter. Loan growth stood at
31.4% y-o-y and 8.5% q-o-q, well above system credit growth. Deposits increased 28.8% y-o-y
and 2.6% q-o-q, CASA ratio continued to show steady improvement to 28.2% driven by
aggressive branch expansion and superior liability product offerings. Core fee income grew
strongly by 44% y-o-y and 13.5% q-o-q, supporting bottom line during the quarter. Cost to
income ratio has marginally inched up to 48.5% on the back of aggressive branch and ATM
expansion during the quarter. Broad trend on asset quality has been stable in a challenging
macro environment reflecting robust credit origination practices. Maintain BUY.
Healthy NII growth led by loan growth: Net interest income grew strongly 31.9% y-o-y led by
strong loan growth 31.4% y-o-y and relatively lower margin contraction during the quarter. Impact
of rising cost of funds on net interest margins has negated to some extent by 435bps increase in CD
ratio and steady improvement in CASA ratio resulted into 9bps q-o-q NIM contraction to 3.41%. We
expect NII to grow 26.3% CAGR over FY11-FY13 driven by strong loan growth and CASA led NIM
expansion.
Strong fee income growth: Core fee income showed strong growth momentum (up 44% y-o-y and
13.5% q-o-q) driven by trade fees, forex income and third party distribution income, contributing
63.2% to Non-interest income. Trading gains declined 12.9% q-o-q to Rs27.8 crore. We are factoring
in 30.8% CAGR in fee income over FY11-FY13e, higher than loan book growth.
Cost to income ratio stable at 48.5%: The bank aggressively expanded its branch (26 branches)
and ATMs (39 ATMs) network during the quarter, resulted into 11% q-o-q increase in employee cost
while other operating expenses increased by 6.7% q-o-q, in line with quarterly run rate. We expect
cost to income ratio to stabilize at ~ 46.1% over FY11-FY13e.
Asset quality held up well: Headline asset quality has held up well during the quarter as Gross NPA
marginally increased from 1% in Q4FY11 to 1.1% in Q1FY12 in a challenging macro environment. Net
NPAs has remained stable at 0.3% in Q1FY12 with provision coverage at 73%. Restructured asset
pool stood at 0.37% of loan book, which is one of the lowest in the industry. We have factored in
70bps and 75bps credit cost in FY12 and FY13 respectively.
Superior return ratios and healthy capital adequacy ratio - The bank reported 1.59% RoA and
18.41% RoE in Q1FY12. We expect the bank to sustain superior return ratios at ~ 1.5% RoA and
17.1% RoE over FY11-FY13e. Capital adequacy stood at 15% while tier I stood at 11.7%. The
management has guided for 25-30% balance growth in the next three years. We expect the bank to
raise equity in FY13 to support their asset growth.
Valuation & Recommendation
Indusind Bank delivered strong bottom line driven by strong core fee income growth and steady NII
growth during the quarter. Branch expansion, diversity in fee income progression and steady
improvement in CASA were key positive highlights of the result. We expect earnings to grow 27.8%
CAGR over FY11-FY13 driven by core operation reflecting superior earnings quality. At Rs 286 the
stock is trading at 2.6x FY13 book and 14.2x FY13 earnings. We expect RoA and RoE to remain at
healthy levels of 1.5% and 18.8% respectively in FY13. Robust growth outlook, superior margins,
diversified fee income profile, continuous improvement in liability franchise, best in class risk
adjusted returns are key value drivers for the stock. We reiterate our BUY recommendation on the
stock with a target price of Rs 331 (Potential upside 15.6%).
