Buy Indusind Bank; target of Rs 1275: Emkay Global Financial

Emkay Global Financial's research report on Indusind Bank

IndusInd Bank’s (IIB’s) credit growth remains robust and in line with our expectations, at 18% YoY/5% QoQ in Q2FY23 which we believe is mainly driven by continued acceleration in the retail book (including MFI/CV) as well as the corporate book. On its MFI book (Bharat Financial, BFIL), the bank seems well poised for growth, with MFI as a sector being on the cusp of a growth-rebound, given asset-quality issues being largely behind and on-the-ground demand showing strong signs of pick-up. For IIB, entry into the higher-ticket individual MFI loan segment would also boost growth. Deposit growth too has been healthy for IIB, at 15% YoY/5% QoQ, unlike other banks’, leading to nearly stable LDR at 82% in Q2. We expect margins to remain largely flattish in Q2, mainly due to flat LDR and repricing benefit to come with a lag owing to the bank’s relatively higher fixed-rate asset book. We expect slippages to remain elevated on account of relapse in the restructured pool, but NPA ratios to moderate from Q1 levels on the back of better recovery and accelerating credit growth. Bank is also well-provided with specific PCR at 72% and additional contingent provision buffer at 0.8% of loans which should keep incremental LLP in check and, thus, be the key profit driver, apart from credit growth.

Outlook

We believe the MFI saga is largely behind and the recent term extension for the MD by the Board puts to rest the uncertainty about current MD&CEO Sumant Kathpalia’s intention of continuing with the bank. We believe RBI approval for the MD re-appointment should not be a challenge, while re-accelerating credit growth, improving return ratios (13-16% over FY23-25E) and reasonable valuations (1.6x FY24E ABV) make IIB a compelling Buy .