IndusInd Bank (INDBA)
CMP: | 975 Target: | 1150 (18%) Target Period: 12 months BUY
July 28, 2021 Steady performance, business outlook improving…
Particulars About the stock: IndusInd Bank is a Hinduja group promoted newer age private
sector bank and is the fifth largest private bank in India. Particulars Amount Market Capitalisation | 75505 crore Vehicle finance forms around 30% of overall loans 52 week H/L 1119 / 483 Net worth | 44548 Crore Strong pan-India presence with 5221 branches as on June 2021 Face Value | 10 DII Holding (%) 17.7
FII Holding (%) 52.1 Update Result Q1FY22 Results: IndusInd Bank reported operationally in line results.
GNPA up 21 bps QoQ to 2.88%. Restructured book at 2.7% Shareholding pattern (in %) Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Total loan related provisions at 3.6% of loans Promoter 14.7 14.7 14.7 16.6 16.5 Loan growth at 6.4% YoY while deposits were up 27% YoY FII 52.1 52.1 54.9 50.9 52.1 DII 14.7 14.7 16.2 18.1 17.7 NII up 7.7% YoY, NIMs down 7 bps QoQ to 4.06%, PAT at | 975 crore Others 18.6 18.6 14.2 14.4 13.7 Price chart
What should investors do? IndusInd Bank’s share price has given flattish returns 2500 20000 in the past five years but in the past year the stock has gained ~2x. We believe the 2000 15000 1500 bank will show improved business growth with corporate book adding to the 10000 momentum along with a pick-up in vehicle financing. 1000 500 5000
We retain our BUY rating on the stock 0 0
Jul-18 Jul-19 Jul-20 Jul-21
Jan-20 Jan-21 Target Price and Valuation: We value the bank at ~1.7x FY23E ABV with a revised Jan-19 target price of | 1150 per share (earlier | 1100). Indusind Bank Nifty Index
Recent Event & Key risks Key triggers for future price performance: GNPA declines to 2.88%. Overall loan
Focus to pedal growth with corporate re-alignment over provisions at 3.6% of loans
Retail Equity Research Equity Retail Healthy capitalisation (CRAR at 17.57%) post warrant conversion Key Risk: Delay in pick-up in balance
– Maintain guidance on NIMs and business traction is positive sheet growth and high Vodafone exposure may impact future earnings Return ratios set to improve with RoA/RoE reaching 1.4%, 11.3%, respectively, by FY23E Research Analyst Kajal Gandhi Alternate Stock Idea: Besides IndusInd, in our coverage we also like Axis Bank. [email protected]
Strong liability profile with healthy capitalisation makes the bank well placed Vishal Narnolia Securities ICICI to accrue earnings growth momentum. Healthy provision cover provides [email protected] comfort on smoother earnings trajectory Sameer Sawant BUY with target price of | 900 [email protected]
Key Financial Summary 4 year CAGR 2 year CAGR | Crore FY19 FY20 FY21 FY22E FY23E (FY17-FY21) (FY21-23E) NII 8,846 12,059 13,528 22% 14,506 16,796 11% PPP 8,088 10,773 11,727 21% 12,289 14,203 10% PAT 3,301 4,418 2,836 0% 4,919 5,904 44% ABV (|) 405 473 537 622 685 P/E 17.1 14.7 25.5 14.7 12.2 P/ABV 2.3 2.0 1.7 1.5 1.4 RoA 1.3 1.5 0.8 1.3 1.4 RoE 13.1 14.4 7.3 10.6 11.3
SsSSS Source: Company, ICICI Direct Research Result Update | IndusInd Bank ICICI Direct Research
Key takeaways of recent quarter & conference call highlights Q1FY22 Results: Decent overall performance NII growth was sequentially marred by NIM decline of 7 bps to 4.06% while advances growth remained flattish QoQ as the management remained cautious on disbursement on the retail side considering the current situation C/I ratio improved 97 bps QoQ to 41.4% due to a fall in opex as a result of low business activity Asset quality deteriorated marginally as GNPA was up 21 bps to 2.88%. Slippages for the quarter were at | 2762 crore of which | 2342 crore came in from consumer segment loans The bank has specific provisions of | 3596 crore, floating provisions of | 70 crore, counter cyclical provisions worth | 760 crore and standard contingent provisions of | 2050 crore. Overall loan related provisions were at 3.6% of loans against 3.3% in the previous quarter Q1FY22 Earnings Conference Call highlights Reduced saving rate by 50 bps. This should aid lower cost of funds June collections at 96% and has improved in the next few weeks Expect 16-18% growth in loans in the next few years SMA2 book at 47 bps as on June 2021 38% vehicle, 24% MFI, 22% other retail and 15% corporate slippage Total ECLGS book at | 4640 crore Also, | 650 crore fresh restructuring done. Expect less restructuring next quarter. Of fresh restructuring, 80% came from MHCV and three-wheeler segment Credit cards spends rebounded in June after a drop in May No NPA from restructuring in gems & jewellery book Fully provided for unsecured MFI loans Collections are expected to return to normalcy by September C/D ratio to be 85-90% Expect normalised credit cost to be at ~1.6-1.9% Total | 1600 crore came in from vehicle finance slippages Write-offs: | 380 crore from vehicle finance, | 100 crore from MFI, | 188 crore from corporate Net interest margin is expected to be 4.15-4.25%
Peer comparison
Exhibit 1: Peer Comparison CMP M Cap EPS (|) P/E (x) P/ABV (x) RoA (%) RoE (%) Sector / Company (|) TP(|) Rating (| Bn) FY21 FY22E FY23E FY21 FY22E FY23E FY21 FY22E FY23E FY21 FY22E FY23E FY21 FY22E FY23E Axis Bank (AXIBAN) 756 900 Buy 2318 25.2 47.7 58.7 30.0 15.9 12.9 2.7 2.3 1.9 0.8 1.3 1.4 8.1 13.8 15.2 City Union (CITUNI) 154 200 Buy 114 8.4 10.0 12.0 18.4 15.3 12.8 2.3 2.0 1.7 1.2 1.3 1.4 11.2 11.9 12.6 DCB Bank (DCB) 103 110 Buy 32 10.8 12.3 15.6 9.5 8.4 6.6 1.1 0.9 0.8 0.9 0.9 1.1 10.2 10.5 11.8 Federal Bank (FEDBAN) 87 100 Buy 174 8.0 9.5 12.0 11.0 9.2 7.2 1.2 1.1 1.0 0.8 0.9 1.0 10.4 11.8 13.4 HDFC Bank (HDFBAN) 1,434 1,800 Buy 7928 56.4 66.4 77.8 25.4 21.6 18.4 4.0 3.6 3.2 1.9 1.9 2.0 16.6 17.0 17.9 IndusInd Bank (INDBA) 975 1,150 Buy 755 36.7 65.1 78.6 26.6 15.0 12.4 1.8 1.6 1.4 0.8 1.3 1.4 7.3 10.8 11.6 Kotak Bank (KOTMAH) 1,740 2,040 Buy 3451 35.1 43.2 51.4 49.5 40.3 33.9 5.6 5.0 4.3 1.8 1.9 2.0 12.4 12.0 13.1 CSB Bank (CSBBAN) 352 380 Buy 61 12.6 18.3 25.5 27.9 19.2 13.8 3.3 2.9 2.4 0.1 1.0 1.2 10.5 13.6 16.4 Bandhan (BANBAN) 298 330 Hold 480 14.7 24.7 31.4 20.2 12.0 9.5 3.4 2.7 2.1 2.3 3.2 3.3 15.0 21.9 22.2 IDFC First (IDFBAN) 51 65 Buy 318 0.8 1.6 2.9 64.3 32.4 17.8 1.8 1.4 1.3 0.3 0.6 0.9 2.7 4.6 7.1
Source: Company, ICICI Direct Research Business is expected to gain momentum with corporate book adding to growth while well provided MFI and unsecured book are expected to reduce earnings volatility.
ICICI Securities | Retail Research 2 Result Update | IndusInd Bank ICICI Direct Research
Exhibit 2: Variance Analysis Q1FY22 Q1FY22E Q1FY21 YoY (%) Q4FY21 QoQ (%) Comments Modest growth due to fall in margins and flat business NII 3,564 3,663 3,309 7.7 3,535 0.8 QoQ Down 7 bps sequentially due to interest reversals on NIM (%) 4.06 2.20 4.28 -22 bps 4.13 -7 bps NPA Other Income 1,781 1,723 1,519 17.2 1,780 0.1
Net Total Income 5,345 5,385 4,828 10.7 5,315 0.6 Staff cost 608 568 552 10.2 595 2.2 Other Operating 1,606 1,724 1,415 13.5 1,658 -3.1 Opex down as a result of lower business activity Expenses
PPP 3,131 3,093 2,861 9.4 3,062 2.3 Elevated provisions as a result of stress accretion and Provision 1,844 1,943 2,259 -18.4 1,865.7 -1.2 balance sheet strengthening PBT 1,287 1,150 602 113.6 1,196 7.6 Tax Outgo 312 293 142 119.7 319.9 -2.6 PAT 975.0 856.8 460.64 111.65 876.0 11.30 Slightly ahead of our estimates
Key Metrics GNPA 6,186 6,027 5,099 21.3 5,795 6.7 Lockdowns impacted collections and thus asset quality NNPA 1,760 1,521 1,703 3.3 1,477 19.2 Credit book 210,727 211,159 198,069 6.4 212,595 -0.9 Deposit book 267,233 267,629 211,265 26.5 256,205 4.3 Healthy YoY growth driven by CASA
Source: Company, ICICI Direct Research
Exhibit 3: Change in Estimates FY22E FY23E (| Crore) Old New % Change Old New % Change Net Interest Income 14,506 14,792 2.0 16,796.1 17,304 3.0 Pre Provision Profit 12,289 12,566 2.3 14,203.5 14,695 3.5 NIM(%) (calculated) 4.6 4.68 6 bps 4.8 4.80 4 bps PAT 4,919 5,037 2.4 5,903.7 6,080 3.0
ABV per share (|) 622.2 623 0.2 684.8 687 0.3
Source: Company, ICICI Direct Research
Exhibit 4: Assumptions Current Earlier FY22E FY23E FY22E FY23E Credit growth (%) 12.4 14.3 10.3 12.1 Deposit Growth (%) 11.4 12.0 11.4 12.0 NIM Calculated (%) 9.3 17.0 7.2 15.8 Cost to income ratio (%) 43.0 42.0 43.5 42.8 GNPA (| crore) 5,795.2 6,205.0 5,795.2 6,189.4 NNPA (| crore) 1,242.4 1,196.0 1,343.1 1,388.2
Credit cost (%) 2.4 2.4 2.4 2.4
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 3 Result Update | IndusInd Bank ICICI Direct Research
Financial summary
Exhibit 5: Profit and loss statement | Crore Exhibit 6: Key Ratios (Year-end March) FY19 FY20 FY21 FY22E FY23E (Year-end March) FY19 FY20 FY21 FY22E FY23E Interest Earned 22,261 28,783 29,000 33,071 37,613 Valuation Interest Expended 13,415 16,724 15,472 18,279 20,309 No. of shares (crore) 60.3 69.4 77.3 77.3 77.3 Net Interest Income 8,846 12,059 13,528 14,792 17,304 EPS (|) 54.8 63.7 36.7 65.1 78.6 Growth (%) 18 36 12 9 17 DPS (|) 7.7 7.8 2.7 4.8 5.8 Non Interest Income 5,647 6,951 6,559 7,247 8,037 BV (|) 442.6 500.3 556.5 639.3 702.6 Treasury Income 115 553 276 221 177 ABV (|) 405.3 473.1 537.3 623.3 687.1 Other income 1,459 1,784 1,483 1,650 1,840 P/E 17.8 15.3 26.6 15.0 12.4 Net Income 14,493 19,010 20,087 22,039 25,341 P/BV 2.2 2.0 1.8 1.5 1.4 Employee cost 1,854 2,208 2,214 2,488 2,816 P/ABV 2.4 2.1 1.8 1.6 1.4 Other operating Exp. 4,551 6,029 6,146 6,985 7,829 Yields & Margins (%) Operating Income 8,088 10,773 11,727 12,566 14,695 Net Interest Margins 3.8 4.5 4.7 4.7 4.8 Provisions 3,108 4,652 7,943 5,806 6,535 Yield on assets 9.6 10.7 10.1 10.5 10.4 Avg. cost on funds 6.2 6.6 5.4 5.6 5.6 PBT 4,980 6,121 3,784 6,761 8,161 Yield on average advances 11.0 12.2 11.8 12.4 12.4 Taxes 1,679 1,703 948 1,724 2,081 Avg. Cost of Deposits 6.1 6.5 5.3 5.4 5.4 Net Profit 3,301 4,418 2,836 5,037 6,080 Quality and Efficiency (%) Growth (%) (8.5) 33.8 (35.8) 77.6 20.7 Cost to income ratio 44.2 43.3 41.6 43.0 42.0 EPS (|) 54.8 63.7 36.7 65.1 78.6 Credit/Deposit ratio 95.7 102.3 83.0 83.8 85.5
Source: Company, ICICI Direct Research GNPA 2.1 2.5 2.7 2.4 2.3 NNPA 1.2 0.9 0.7 0.5 0.4 ROE 13.1 14.4 7.3 10.8 11.6
ROA 1.3 1.5 0.8 1.3 1.4
Source: Company, ICICI Direct Research
Exhibit 7: Balance sheet | Crore Exhibit 8: Key ratios (%) (Year-end March) FY19 FY20 FY21 FY22E FY23E (Year-end March) FY19 FY20 FY21 FY22E FY23E Sources of Funds Total assets 25.4 10.5 18.2 11.4 10.8 Capital 603 694 773 773 773 Advances 28.6 10.9 2.8 12.4 14.3 Employee Stock Options 11 9 5 5 5 Reserves and Surplus 26,072 34,003 42,587 48,991 53,882 Deposit 28.5 3.7 26.8 11.4 12.0 Networth 26,686 34,706 43,365 49,769 54,661 Total Income 26.7 28.0 (0.5) 13.4 13.2 Deposits 1,94,868 2,02,040 2,56,205 2,85,398 3,19,679 Net interest income 18.0 36.3 12.2 9.3 17.0 Borrowings 47,321 60,754 51,323 56,259 60,051 Operating expenses 14.5 28.6 1.5 13.3 12.4 Other Liabilities & Provisions 8,944 9,558 12,080 12,857 13,694 Operating profit 21.5 33.2 8.9 7.2 16.9 Total 2,77,819 3,07,058 3,62,972 4,04,283 4,48,085 Net profit (8.5) 33.8 (35.8) 77.6 20.7 Net worth 12.0 30.1 24.0 14.9 9.9 Application of Funds EPS (8.8) 16.3 (42.4) 77.6 20.7
Fixed Assets 1,710 1,820 1,809 1,974 2,078 Source: Company, ICICI Direct Research Investments 59,266 59,980 69,695 79,454 90,580 Advances 1,86,394 2,06,783 2,12,595 2,39,039 2,73,207 Other Assets 15,666 22,471 6,840 47,963 43,380 Cash with RBI & call money 14,783 16,004 72,033 35,853 38,838 Total 2,77,819 3,07,058 3,62,972 4,04,283 4,48,085
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 4 Result Update | IndusInd Bank ICICI Direct Research
RATING RATIONALE ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock Buy: >15% Hold: -5% to 15%; Reduce: -15% to -5%; Sell: <-15%
Pankaj Pandey Head – Research [email protected]
ICICI Direct Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093 [email protected]
ICICI Securities | Retail Research 5 Result Update | IndusInd Bank ICICI Direct Research
ANALYST CERTIFICATION
I/We, Kajal Gandhi, CA, Vishal Narnolia, MBA and Sameer Sawant, MBA Research Analysts Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.
Terms & conditions and other disclosures:
ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is Sebi registered stock broker, merchant banker, investment adviser, portfolio manager and Research Analyst. ICICI Securities is registered with Insurance Regulatory Development Authority of India Limited (IRDAI) as a composite corporate agent and with PFRDA as a Point of Presence. ICICI Securities Limited Research Analyst SEBI Registration Number – INH000000990. ICICI Securities Limited SEBI Registration is INZ000183631 for stock broker. ICICI Securities is a subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.
ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities and its analysts, persons reporting to analysts and their relatives are generally prohibited from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
Recommendation in reports based on technical and derivative analysis centre on studying charts of a stock's price movement, outstanding positions, trading volume etc as opposed to focusing on a company's fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit icicidirect.com to view the Fundamental and Technical Research Reports.
Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.
ICICI Securities Limited has two independent equity research groups: Institutional Research and Retail Research. This report has been prepared by the Retail Research. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, and target price of the Institutional Research.
The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.
This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.
ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.
ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co- managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.
ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.
Since associates of ICICI Securities and ICICI Securities as a entity are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report.
ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.
We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.
ICICI Securities | Retail Research 6