Emkay's research report on IndusInd Bank
IndusInd Bank, massive expansion plans, adequate capital, proven track record and sound management put Indusind Bank in strong position to ramp up its growth when macro turns favourable
Expanding branch network, with seasoning of existing branches is expected to result in improvement in CASA ratio, leading to margins expansion by 13bps
We are factoring in rise in credit cost by 15bps, due to higher slippages compared to previous years. Despite that RoA to remain stable at 1.6 percent due to improvement in NIMs
At CMP, the stock is valued at 2.1x of its average ABV of FY15E-16E, 15 percent discount to its average multiple of 2.4x.
The bank has delivered strong asset quality performance during the 12 quarters in spite of slowdown in the commercial vehicle segment and continued stress in the corporate book. Overall, the slippage ratio has been maintained in the range of 1.1 percent -1.3 percent, while credit cost has remained at 13-16bps. However, we are building in a higher slippages ratio (1.4 percent during FY14-16E as against 1.1 percent in FY13) largely due to: 1) the continued challenging environment in the CV segment and 2) sustained pressure on the corporate loan book.
"We remain confident about the bank’s balance sheet and its ability to absorb a higher credit cost in the event of unexpected rise in slippages. At CMP, stock trades at 2.1x of its ABV (average of FY15E-16E), 15 percent below to its average valuation of 2.4x, due to the risk of increase in slippages and credit cost. However, we believe, the bank will maintain its current RoA, and the valuation multiple will reach its last 2-3-year average of 2.4x. Initiate coverage with an Accumulate rating and target price of Rs 481," says Emkay Global Financial Services research.
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