IndusInd Bank - Stable Quarter; Result Update Q3FY15 :: Edelweiss

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IndusInd Bank (IIB) reported in-line Q3FY15 PAT of INR4.3bn (up 29% YoY). Key highlights were: 1) NII growth came in lower at 18% owing to relatively slower loan growth - pulled down by slower vehicle financing growth; 2) this, coupled with below-trend core fee growth kept operating profitability under check; 3) NIMs improved by 4bps QoQ due to lower funding cost; 4) credit cost inched up marginally to 17bps (up 7bps QoQ) albeit on track to meet its annual guidance of sub-60bps. Strong traction was seen in SA deposits (up 7% QoQ, 32% YoY) and now accounts for 17.6% of deposits taking CASA to 34%. Given successful track record and steady progress towards Phase III instills confidence of minimal execution risks. We expect RoA to improve on sustained asset growth, improving CASA, higher fees and contained cost/income.

Below-trend loan growth restrains operating profitability

Loan growth was below trend following slower retail growth (sub-10%). As a result, loan mix tilted further in favour of corporate book (CCB) now forming 58% of the book (versus 51% in FY13). This growth from lower yielding CCB restricted NIMs improvement to 4bps QoQ despite the 15bps QoQ improvement in funding cost. However, management guided for rebalance of loan mix in favour of retail loans as vehicle financing gains traction, which we believe will provide leg-up to NIMs as well.

On track to achieve Phase III targets

Q3FY15 results further reaffirmed our belief that IIB is on course to meet its Phase III targets. The bank has a well-thought out strategy of selective dominance in home markets - building infrastructure and capturing sizeable pie in home markets (12 home markets identified) armed with its entire product bouquet. Its 3D strategy (refer our note: ”The winning  troika”) will help it sustain superior return ratios.

LINK
https://www.edelweiss.in/research/IndusInd-Bank--Stable-Quarter;-Result-Update-Q3FY15/28012.html