Buy IndusInd Bank; target of Rs 415: Motilal Oswal

Motilal Oswal is bullish on IndusInd Bank and has recommended buy rating on the stock with a target of Rs 415 in its July 11, 2012 research report.

“IndusInd Bank Reported margins declined 7bp QoQ to 3.22% led by 35bp+ QoQ (7.62%) increase in cost of funds. Pressure on margins to an extent got absorbed by higher yield on assets (+28bp QoQ). Yield on loan increased by just 4bp QoQ to 13.95%, indicating a sharp improvement in yield on investments (calculated yield on investment improved 63bp QoQ). Yield on consumer finance book remained flat QoQ at 16.3%, whereas yield on corporate finance book increased by 5bp QoQ to 11.8%.”
“Loan growth remained above industry average with increase of 6% QoQ and 31% YoY to INR372.5b. Incremental loan growth is being driven by high yielding CFD (+~9% QoQ and 48% YoY). Share of consumer finance continued to grow and stood at 50.4% v/s 49.2% a quarter ago and 44.8% a year ago. The growth in consumer finance segment was healthy in all of its sub-segment. CV loans remain key driver (+7% QoQ and 44% YoY), with utility and car growing at 15%+ QoQ. Credit cards and personal loan/LAP increased ~21% QoQ to INR9.6b (share increased from 1.4% in 1QFY12 to 2.6%). Corporate Advances grew 4% QoQ and 18% YoY. Management is targeting a loan growth of 25-30% over FY13-14.”
“With ~50% of deposits wholesale in nature, IIB is leveraged to systemic interest rates and liquidity; evident from 270bp increase in cost of term deposits in FY12. NIM is expected to improve sharply in 2HFY13 and FY14 with (a) 50% of loan book fixed in nature (built in high interest rate environment) (b) increasing share of consumer finance (c) expected benefit of fall in interest rates on wholesale deposits and (d) increasing traction in CASA deposits. Share of fee income to average assets has increased to 1.8% v/s 1.6% a year ago - a key ROA driver. Over FY10-12, contribution of fee income to average assets has increased by ~40bp driving ROA upgrade. Management maintained its guidance to grow its fee income faster than balance sheet growth. While asset quality remains strong, we model higher credit cost of 60-75bp for FY13/14 v/s ~45bp in FY12, to factor in possible rise in delinquency. However, superior margins, focused fee income strategy and control over C/I ratio will keep core operating profitability strong. Improving liability franchise, structural improvement in RoA and 20%+ asset growth should help IIB to post one of the highest PAT CAGR (~27%) among the banks under our coverage.”
“We expect IIB to report EPS of INR21.4 / INR27.7 and BV of INR115/ INR 139 in FY13 / FY14. The stock trades at 12.4x and 2.5x FY14 EPS and BV. Maintain Buy with target price of INR415 (3x FY14 BV),” says Motilal Oswal research report.  FIIs holding more than 30% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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