Buy IndusInd Bank; target of Rs 1050: ICICI Direct

ICICI Direct's research report on IndusInd Bank

IndusInd Bank posted a decent set of Q3FY21 numbers with a sequential improvement in some parameters. Rise in proforma NPA and restructuring came in-line with expectations. Provision buffer at ~3% of advances provides comfort limiting volatility in earnings. In Q3FY21, NII increased 10.8% YoY, 3.9% QoQ to Rs 3406 crore. Margins for the quarter declined a tad by 4 bps QoQ. Other income increased QoQ by 9.8% to Rs 1705 crore. This was mainly on account of 31% QoQ rise in core fee income. Operating expenses were under control. As a result, the cost-to-income ratio was down ~171 bps YoY to 41.8% but was up sequentially by ~41 bps, attributable to a rise in business activity. Provisions remained elevated at Rs 1854 crore but was down 5.6% QoQ. During the quarter, the bank made provisions worth Rs 1106 crore for Covid related stress. Overall, led by a sequential decline in provisions and pick-up in topline, the bank posted a profit of Rs 853 crore, up 31.8% QoQ, ahead of our estimates.

Outlook

we maintain our target price at Rs 1050, valuing the stock at ~1.8x FY23E ABV. Given the recent price correction, we upgrade the rating from HOLD to BUY.