KR Choksey's research report on IndusInd Bank
Q2FY17 turned out to be another strong quarter for IndusInd Bank (IIB) characterized by healthy NII traction that largely offset below than expectations non-interest income performance coupled with industry best margins and asset quality. Superior margins (4%) aided by CASA enhancement (CASA ~37%) and declining slippage trend coupled with healthy loan mix drove the strong NII expansion and thereafter robust operating performance. The core operating performance continues to be intact with sturdy 27%+ y/y operating profit growth. While tad elevated credit costs and weak non-interest income (lagging credit growth) for the quarter on account of decline in trading gains disappointed, PAT at INR 7043 mn stood at healthy 26% y/y growth; in-line with our expectations. The asset quality continues to stand on a firm footing and the headline NPA numbers stood well in control; restricted little below 1% levels. Operationally, the bank has delivered another strong & consistent quarter.
With strong balance sheet, sustainable earnings and promising return ratios Indusind Bank possess the right ingredients to maintain successful track record of growth and profitability and capital efficiency. While the robust loan book growth outlook remains intact aided by better growth in retail loans, the falling funding costs & better loan book mix with increased focus on non-vehicle finance have been the key catalysts to margins sustenance. Moreover, rich core profitability, low-cost CASA strength and ability to leverage upon the strong distribution network backed up by comfortable capital position (Tier I-16%) reinforces our belief in the sustainable superior earnings performance of the bank. We maintain healthy 27%+ earnings CAGR over FY16-18E.
IIB is seemingly mirroring the quality depicted by top league private bank. Hence, we re-rate the target multiple higher owing to its robust earnings outlook, superior margins, best-in-class asset quality and rich return ratios. Maintain BUY with a price target of INR 1,500 (earlier INR 1,352) at fair value of 3.91x FY18E now. The stock is currently trading at 3.2x P/ABV FY18E.For all recommendations, click here
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.