Buy Induslnd Bank; target Rs 309: KRChoksey

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Buy Induslnd Bank; target Rs 309: KRChoksey

KRChoksey is bullish on Induslnd Bank (IIB) and has recommended buy rating on the stock with a target price of Rs 309 in its January 11, 2012 research report.

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KRChoksey is bullish on Induslnd Bank (IIB) and has recommended buy rating on the stock with a target price of Rs 309 in its January 11, 2012 research report.

"Induslnd Bank (IIB) delivered another strong operating performance with PAT of Rs 206crore (up 33.9% y-o-y and 6.7% q-o-q), in line with our expectation, but above street's expectation. NII grew modestly 18.6% y-o-y & 2.7% q-o-q driven by strong loan growth 7.6% q-o-q. Core fee income continued to show strong momentum growing by 45.7% y-o-y & 18.2% q-o-q led by strong growth in various fee generating segments. Loan growth was at 29.7% y-o-y and 7.6% q-o-q, outpacing sector growth aided by strong growth in retail loan book (48.4% y-o-y & 11.5% q-o-q). Deposits increased 32.3% y-o-y and 5.7% q-o-q, CASA ratio showed marginal dip q-o-q due to sharp contraction in current account deposits (-8% q-o-q). However, Saving bank deposits registered strong growth 54% y-o-y & 21% q-o-q largely benefiting from saving bank de-regulation during the quarter. Given tough macro environment, asset quality has been fairly strong during the quarter with Net NPAs at 0.29%. The stock ended 6.2% up post results."

"Net interest income grew modestly 18.6% y-o-y & 2.7% q-o-q led by strong loan growth 29.7% y-o-y. NIM contracted 10bps q-o-q to 3.25% due to higher incremental refinancing costs and decline in yield in corporate loan book (33bps q-o-q). The management has guided us that NIM has bottomed out and is likely to improve going forward. We believe higher proportion of fixed rate loan book (48%) would be immensely benefited from rate easing cycle, positively impact NIMs. Core fee income continued to show strong growth momentum (up 45.7% y-o-y and 18.2% q-o-q) driven by forex income, investment banking and distribution income contributing 79.0% to Non-interest income. Trading gains stands at 5% of non interest income, down 46% q-o-q to Rs13crore. The management expects core fee income continues to grow higher than balance sheet growth over FY11-13. We are factoring 35.2% CAGR in fee income over FY11-FY13e. Broad asset quality held up well during the quarter as Gross NPA flat q-o-q to 1.0% in a challenging macro environment. Net NPAs has remained stable at 0.3% with provision coverage of 72% in Q3FY12. Restructured asset pool stood at 0.22% of loan book, which is one of the lowest in the industry. The management has guided us that the credit costs for FY12 would be lower than FY11 levels, reflecting superior underwriting standards."

"The bank reported 1.55% RoA & 19.1% RoE in Q3FY12. Capital adequacy stood at 13.4% while tier I stood at 10.7% excluding 9MFY12 profits. We expect the bank to raise equity in FY13 to support their asset growth and BASEL III norms. Indusind Bank delivered another strong quarterly earnings supported by modest NII growth, strong core fee income growth and stable credit costs. We expect IIB to deliver 28.2% CAGR in earnings over FY11-FY13. At Rs 261 the stock is trading at 2.3x FY13 ABV and 11.9x FY13 earnings. We expect RoA and RoE to remain at healthy level of 1.6% and 20.1% respectively in FY13. Strong earnings growth visibility, NIM improvement led by rate easing cycle and superior asset quality are key value drivers for the stock. We reiterate our BUY rating on the stock with a target price of Rs 309 (Potential upside 18.4%)," says KRChoksey research report.

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