Kotak which expects 30 percent growth in NII and 24 percent in PPoP, said it expects the bank to make high provisions for their IL&FS exposure (holding company - 100 percent from 70 percent).
Private sector lender IndusInd Bank is expected to report a double-digit growth in net interest income as well as pre-provision operating profit, but its bottomline could be subdued due to higher credit costs for the quarter ended June 2019.
The stock was one of the biggest losers among the Nifty50 in June quarter as it fell 20 percent, underperforming the Nifty50 and Bank Nifty that gained 2 percent each due to its exposure to cash-strapped companies like DHFL, Jet Airways etc.
The bank will announce its first quarterly earnings of the merged entity on July 12, so the numbers are not comparable on year-on-year (YoY) and quarter-on-quarter (QoQ).
As a synergy benefit, analysts largely expect net interest income, loan book and pre-provision operating profit to grow over 20 percent year-on-year.
"IndusInd Bank would be reporting the merged numbers. We thus expect IIB to report strong loan growth of around 33 percent YoY in Q1 FY20. Deposit growth is estimated to remain strong at around 28 percent YoY. Margins are likely to expand to 4.3 percent, driven by high-yielding book of Bharat Financial," said Motilal Oswal which expects net interest income growth at 38 percent and profit 1.7 percent YoY.
While expecting NII growth at 53.3 percent YoY and Pre-Provision Operating Profit (PPOP) at 41 percent, ICICI Direct said that advances of the merged entity are expected at Rs 2.1 lakh crore as of Q1 FY20.
"The merger is expected to yield synergy benefits in the form of higher NII and better capital conservation. NII is expected at Rs 3,254 crore, with benefit of lower cost of funds surpassing negative carry of maintaining regulatory reserves," the brokerage added.
According to Motilal Oswal, non-interest income (other income) could grow around 22 percent YoY, supported by healthy fee income growth. "Treasury gains will further support non-interest income. PPoP growth is estimated to remain healthy at 33 percent YoY."
Phillip Capital and HDFC Securities expect a 14 percent decline in profit year-on-year.
Asset quality is seen moderating on sequential basis but credit cost is expected to remain elevated, brokerages feel.
"With IL&FS being recognised as an NPA and the payment of other stressed corporate not overdue, slippages are seen to be moderating. However, credit cost has seen remaining elevated at Rs 1,008 crore (around 0.5 percent of advances). Consequently, a higher credit cost is seen as putting pressure on earnings, with the trajectory remaining subdued at 11 percent YoY to Rs 1,145 crore," ICICI Direct said.
Kotak, which expects 30 percent growth in NII and 24 percent in PPoP, said it expects the bank to make high provisions for their exposure to IL&FS (holding company - 100 percent from 70 percent).Key things to watch out for would be the impact on the commercial vehicle (CV) portfolio (particularly after the slowdown in CV sales), corporate asset quality, guidance and the way forward for the merged entity, and guidance on credit costs given the exposures they have to select companies that are currently under stress.