Buy IndusInd Bank; target of Rs 720: Prabhudas Lilladher

Prabhudas Lilladher's research report on IndusInd Bank

IIB's earnings of Rs3.0bn (PLe: Rs3.3bn) were in-line with expectation as bank made high provisions to improve its PCR to 63% from 53% sequentially, which was lagging behind peers. Slower earnings trajectory was also on back of Rs5.5-6.0bn of higher provisions for potential COVID impact & on stressed telecom sector. Overall PPOP performance was better with strong NII led by expansion in NIMs of 10bps sequentially, contrary to expectations, while opex control also helped. With IIB's diversified book it is vulnerable to weak macroeconomics and could see higher prolonged stress. In view with this, we build in similar credit costs 190-200bps & slippage rate of 300bps seen in FY20 and muted business outlook in FY21.

Outlook

We maintain BUY with revised TP of Rs720 (from Rs786) based on 1.2x Mar-22 ABV as risk adjusted margins can still manage to be positive while new management could lead direction toward granular and stronger b/s.