Yet another healthy quarter; outlook bright…. • IndusInd Bank :: ICICI Securities, report

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Yet another healthy quarter; outlook bright….
• IndusInd Bank (IIB) maintained its strong performance with PAT
increasing 29% YoY to | 447 crore as expected. NII was up 18% YoY
to | 861 crore supported by healthy credit traction of 22% YoY to
| 63847 crore and 4 bps QoQ NIM improvement to 3.67%
• Other income came higher than expected at | 611 crore, up 27%
YoY. Core fee income was up 22% YoY to | 522 crore mainly led by
distribution fees & forex related fee income
• The CV portfolio witnessed a 4% QoQ rise to | 10043 crore against a
sequential decline seen in the last four quarters
• Asset quality remained largely stable QoQ with GNPA at | 672 crore
(ratio -1.05%) and NNPA at | 202 crore (ratio – 0.32%)
Turnaround done successfully; well poised for growth ahead of industry
After taking over in early 2008, the current management 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
and PAT traction improved to 28%, 21% and 63% CAGR over FY08-14
from 12%, 13% and -35% during FY05-08, respectively. The loan and
deposit base, as on Q3FY15, stands at | 63847 crore and | 69376 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% in 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 Q3FY15 NIM
stood at 3.67% with the rising corporate book. The high yielding loan
book and healthy CASA franchise enable IIB to maintain such strong
margins. In the past six years, IIB’s reported NIM improved from 1.7% to
3.7% as on FY14. Such a structural improvement is primarily on the back
of a substantial improvement in the 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 high vehicle financing)
and corporate banking (CB) (working capital in nature and well diversified
across industries). Though concerns are being raised about the CV
portfolio (16% 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% at | 788 crore) by FY15E.
Visibility in earnings much better than peers; maintain BUY
IIB continued to deliver a strong performance relative to peers over the
quarters & despite a weak economy in the past two or three years. This is
clearly reflected in its stock performance & continuous re-rating in
multiple. We roll over our estimates to FY17E. Expected return ratios of
~20% RoE & 2% RoA provide comfort. We raise our TP to | 925 (valuing
at 3.4x FY17E ABV) & maintain our BUY recommendation. Improving CV
cycle would be key positive for growth, margins and asset quality.

LINK
http://content.icicidirect.com/mailimages/IDirect_IndusIndBank_Q3FY15.pdf