Accumulate IndusInd Bank; tgt of Rs 363: Aditya Birla Money

Aditya Birla Money is bullish on IndusInd Bank and has recommended accumulate rating on the stock with a target of Rs 363 in its July 11, 2012 research report.

“IndusInd Bank, net profit for the current quarter increased 31.1% YoY (5.8% QoQ) to ` 2362.6 mn from ` 1801.8 mn for Q1 FY12. The growth in PAT, despite higher operating expenses (on the back of aggressive branch and employee addition), was mainly driven by 24.1% YoY (4.2% QoQ) increase in the NII and 48.0% YoY (9.2% QoQ) increase in other income. Within other income, core fee income grew at a healthy 44% YoY (2% QoQ) during the quarter. The growth in NII despite lower NIMs during the quarter was mainly driven by robust growth in advance book (31.2% YoY, 6.2% QoQ) coupled with higher CD ratio (increase of 214 bps YoY). C/I ratio during the quarter increased by 117 bps YoY (decline of 21 bps sequentially).The management expects the cost ratios to decline going forward.”

“Net Interest Margins (reported) during the quarter registered a decline of 7 bps sequentially (19 bps YoY) on the back of higher increase in cost of funds as compared to yield on assets. The total cost of funds increased by ~35 bps sequentially as against an increase of ~28 bps in yield on assets. However, higher yield on investments partly offsetted the decline in NIMs to some extent during the quarter. The management expects the cost of funds to come down in the coming quarters which will aide in margin expansion. Total business of the bank registered a robust growth of ~29.3% YoY (6.3% QoQ) as of Q1FY13. Deposits grew by 27.8% YoY (6.4% QoQ), whereas Net Advances grew by 31.2% YoY (6.2% QoQ). The advance book grew on the back of healthy 48% YoY (9% QoQ) growth in the retail book, while corporate advances book grew by modest 18% YoY (4% QoQ). CASA during the quarter increased by ~60 bps sequentially from 27.3% in Q4FY12 to 27.9% in the current quarter. Going forward, the management guided for loan book growth of 25%-30% for FY13.”
“Asset quality continued to remain stable with gross NPA at 0.97% (1.08% YoY, 0.98% QoQ) and net NPA at 0.27% (0.30% YoY, 0.27% QoQ). The bank reported higher slippage during the quarter (~1.2% annualised as against 1.1% in FY12) as one big account pertaining to gem & jewellery sector slipped into NPA. However, higher recoveries during the quarter aided in containing the level of gross NPA. There was no fresh restructuring done during the quarter. Restructure asset as a % of gross advances stood at 0.24% in Q1FY13 (0.26% in Q4FY12). Provision coverage based on specific provisions was at 72.6% lower by 27 bps YoY (8 bps sequentially). Going forward, the management is targeting to contain the credit costs at ~50 bps for FY13. The bank had opened 21 new branches in this quarter taking the total number of branches to 421. The bank plans to cross 500 branches in FY13E and ~650 branches by FY14E.”

“The bank continued show of impressive performance despite challenging times, reflecting the bank’s strong and dynamic business model. We estimate Indusind Bank to report an EPS CAGR of 32.9% over FY12-FY14E. ABV is estimated to grow at 21.0% CAGR during the same period. We believe with the recent deregulation of savings rate, improving branch productivity and aggressive branch expansion plans, the bank’s liability profile is likely to get stronger. Considering the bank’s strong asset quality performance during the quarter as against our expectation of some deterioration, we have increased our earnings estimates by ~3.8% & ~4.7% for FY13E and FY14E respectively. Our target price stands revised at ` 362.7 (` 352.5 earlier) valuing the bank at 2.5x its FY14E ABV, implying an upside of 5.6% from current levels. Thus we change our rating from Buy to Accumulate,” says Aditya Birla Money research report.

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