Accumulate IndusInd Bank; target of Rs 690: PLilladher

Prabhudas Lilladher`s research report on IndusInd Bank“Core PPOP (excl treasury) growth was at ~21% YoY in Q2FY15, which continues to slow largely on some spike in Opex as Bank gets aggressive on branch expansion and technology related spending. But slowing core PPOP was stemmed by beat in core fee income on robust growth in third party distribution fees (13% QoQ growth). Margins contracted by ~3bps QoQ to 3.63% as incremental credit was higher to foreign currency borrowers in corporate loan book which are relatively lower yielding. But NIMs downfall was contained by better cost of funds management with accretion in CASA and lower borrowings. Management’s focus has been high on non‐auto retail portfolio especially the LAP segment, and gave optimistic guidance on CV loan book growth in H2FY15, where IIB saw good disbursement trends in September compared to last 12‐15 months. Asset quality was very stable during the quarter and remained largely unchanged sequentially. Incremental slippages were largely from consumer book. As a result of no large slippages, credit cost was on ~49bps (annualised) in Q2FY15. IIB’s restructured portfolio of Rs3.1bn saw a slight increase during the quarter by Rs770mn.” “IIB has been efficiently harnessing benefits of technology through innovative products which has contributed to gain in market share on both liabilities and assets. IIB has become aggressive on expanding its branch network to 800 from 750 by Mar‐15 end and take it to 1000 by Mar‐16 end. This will help maintain high B/S growth, drive fee income and improve CASA, which will help ROAs to move towards 2% by FY17 despite high opex costs.” “IIB’s Q2FY15 PAT performance of Rs4.30bn was sligtly above expectations led by strong fee income and lower credit cost on stable asset quality. Some opex spikes were seen as Bank has become aggressive on branch expansion and technology spending. IIB continues to perform well on CASA and Non-auto retail part and with optimistic outlook on CV loan growth in H2FY15 will help B/s growth and margin accretion, but P/BV at 2.7x after rollover to Sep-16 book is not cheap and we believe positives are priced in with limited upside of 8%. We maintain Accumulate rating with increased TP of Rs690 (mainly on rollover of BV),” says Prabhudas Lilladher research report.   

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