IndusInd Bank -Good execution, growth momentum to sustain; initiate with OUTPERFORM:: Standard Chartered Research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


IndusInd Bank
Good execution, growth momentum to sustain; initiate with OUTPERFORM


 We initiate coverage with OUTPERFORM and price
target of Rs315 based on a 3.2x FY12E P/BV.
 Robust turnaround: Over FY08-3Q FY11, RoA has
moved up from 0.35% to 1.54%.
 Continued growth: We expect RoA to sustain at 1.41%
for FY11E and 1.39% for FY12E with earnings growth of
30% p.a over FY11E-13E.
 Target multiple premium is justified by higher-thansector
earnings growth, faster-than-sector improvement
in profitability and good execution by management in the
last 1.5 years.



Robust turnaround – The new ex-ABN Amro management
team has turned around IndusInd Bank’s profitability and
brand image post FY08. Over FY08-3Q FY11, the bank
added 78 branches, lowered NPLs from 2.7% to 1.2%,
improved CASA share from 15.7% to 26.8% and
consequently raised RoA from 0.35% to 1.54%.
Impressive growth to continue – After the initial clean-up,
we expect growth to continue in what management
describes as ‘Cycle II 2011-2014’. We expect the bank to
grow earnings by 30% p.a. over FY11-13E against 112%
growth p.a. over FY08-10. We expect RoA to remain strong
at 1.39% in FY12E.
Premium to the sector justified – Our price target is
based on a 3.2x FY12E P/BV, at a premium to other private
banks. We believe that higher-than-sector earnings growth,
faster-than-sector improvement in profitability and good
execution by management justifies the premium.
Valuation – Our price target of Rs315 for IndusInd Bank is
based on a 3.2x FY12E P/BV. We have used sustainable
RoA of 1.6%, cost of equity of 13.0% and sustainable
growth rate of 8%.
Risks – Exposure to MFIs, reliance on top management for
execution capabilities and higher-than-expected credit
costs.


Valuation
Our price target of Rs315 for IndusInd Bank is based on 3.2x FY12E P/BV. We have used
sustainable RoA of 1.6%, sustainable RoE of 24.1%, cost of equity of 13.0% and sustainable
growth rate of 8%. We have explained how we derived our price target in the table below. Over
the past five years, the bank has traded at a high multiple of 3.2x, low multiple of 0.7x and
average multiple of 1.5x. We believe IndusInd will trade at a premium to its historical trading
range driven by substantial improvement in all key financial metrics after the new management
team took charge in 2008. Earnings growth for IndusInd at 30% over FY11-13E and RoA of 1.4%
in FY12E are higher than the sector averages, in our view.



Company profile
IndusInd Bank commenced operations in 1994 as a new age private sector bank with service
offerings across the retail and corporate segments. The bank operates through a network of 258
branches and 565 ATMs with representative offices in Dubai and London. The bank has assets of
over Rs415bn and loans of over Rs250bn with a dominant exposure to vehicle finance.
Management team
Managing Director: Romesh Sobti
Ramesh Sobti previously was the Executive Vice President – Country Executive, India and Head,
UAE and Sub-Continent, at ABN AMRO Bank N.V where he spent 18 years. He had earlier
served at ANZ Grindlays Bank Plc (now Standard Chartered Bank) and State Bank of India. He
holds a Bachelor’s Degree (Honours) in Electrical Engineering and a Diploma in Corporate Law
and Practice and Secretarial Practice.
Chief Financial Officer: S. Zaregaonkar
He is the Chief Financial Officer and Investor Relations of IndusInd Bank. He is a qualified
Chartered Accountant and a Post Graduate in Commerce and a Law Graduate with CAIIB. He
had earlier served with Dena Bank.
Chief Operating Officer: Paul Abraham
Paul Abraham, prior to joining IndusInd Bank, served as MD of ABN AMRO Central Enterprise
Services and as COO of ABN AMRO Bank in India