Accumulate IndusInd Bank: Arihant capital markets

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Accumulate IndusInd Bank: Arihant capital markets

Arihant capital markets is bullish on IndusInd Bank and has recommended accumulate rating on the stock with a target of Rs 314 in its January 11, 2012 research report.

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Arihant capital markets is bullish on IndusInd Bank and has recommended accumulate rating on the stock with a target of Rs 314 in its January 11, 2012 research report.

"The IndusInd bank results reinstated the belief in the private bank which has been consistently posting healthy set of numbers for quarters now. Announcing the results within 10 days of quarter closing also boosts confidence. The net profit grew by 34% to Rs 206 cr with a good support from fee income and a healthy asset quality."

"Advances growth of 30% was at the higher end of guidance of management. The outstanding advances grew to Rs 32,426 cr led by retail loans (+48% YTD, 19% QoQ); increasing its proportion to 48% of the total loan book as against 44% in March 2011. All segments in retail like vehicle financing, equipment financing and credit card are growing with healthy yields as well as good liquidity. Bank maintains its guidance of 25-30% growth over Phase II. Despite slowing economy its smaller book and strategies may allow it to post such heavy growth. Despite steady yield on advances and cost of deposits, NIM decreased to 3.25% (- 10 bps QoQ, -7 bps YOY), as to rebalance the long term portfolio the bank had to resort to borrowings at high cost. However the impact of such borrowings may not be much going forward as their average age is less than one year and is somewhat mitigated by the fixed-rate consumer finance book. The yields of corporate book came down as the bank exited from some high yielding risky construction segment loans. Going forward we expect the reported margin to stabilize at ~3.2%."

"IIB managed to grow its other income at a healthy pace of 35% YoY with 46% YoY growth in core fee income. As guided by the bank in previous quarter investment banking fee revived again with 168% QoQ growth. The next quarter is also expected to do well. Overall a healthy traction was seen in all segments including TPP, credit cards etc. Barring the one-off slippage in corporate segment which increased the previous quarter stress, this quarter was back to normal. Though the slippage continues in retail (CFD) segment, the overall recovery remained robust and the net increase in the GNPA was just Rs 1 cr in Q312 and the credit cost was restricted to just 36bps (annualized). The restructured book reduced to 0.22% of the advances with no impending proposals as yet. Despite the fact that the bank has grown its portfolio when the economy is slowing down it is confident of asset quality being maintained. We built in some pressure in FY13 though."

"The direct benefit of aggressively growing the retail book will be on the margins for the bank as it is a fixed rate book and will not reprice even if the general rates start coming down. As the delinquency of this portfolio is less and bank also gets opportunities to sell the book, we can expect the growth to remain robust. On the fee income side, as ~45% of the core fee income is non- balance sheet linked it allows a good RoA as well as RoE contribution to the bank. The increase in savings account rate is likely to benefit the bank to leverage its network properly. We increase our earnings by 5% for FY12E accounting for the lower credit cost but on FY13 concerns our target price is reduced to Rs 314 at a P/BV of 2.8x. At CMP of Rs 260, the stock trades at FY13E P/ABV of 2.3 times," says Arihant capital markets research report.

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