Buy IndusInd Bank; target of Rs 1026: Prabhudas Lilladher

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Prabhudas Lilladher's research report on IndusInd Bank

IIB’s earnings of Rs8.5bn were below our estimates (PLe: Rs10.9bn) but were higher than consensus estimates. Miss was largely on higher provisions on pro-forma NPAs, although performance was quite good on operating side. Deposits continued to grow at health pace, up 10% YoY/5% QoQ/18% YTD, with CASA growing at 5% YoY/QoQ/19% YTD. Incremental comfort comes from CE improving in VF to 97% v/s 94% in Q2 and in MFI 94% (95.5% till Jan end) v/s 87% in Q2 and overall CE at 97% v/s 95% in Sep’20. Restructuring outcome was at 1.8% of loans (incl. invoked) is higher than industry, while pro-forma slippages of 1.24% of loans were slightly higher driven by unsecured retail/MFI/VF.

Outlook

Our new estimates on credit cost of 350bps (300bps earlier) is with view of bank front loading provisioning to retain higher PCR and cover hits from NPAs and should revert to much lower number ahead driving return ratios. Hence, we upgrade to BUY given the recent decline with retained TP of Rs1,026 based on 1.5x Mar-23 ABV. We have not factored in promoter warrant conversion which will add 2-3% to BV.

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