Buy IndusInd Bank; target of Rs 1700: ICICI Direct

ICICI Direct's research report on IndusInd Bank

IndusInd Bank reported a steady operational performance led by sturdy growth in NII & other income of 34% YoY & 22% YoY to Rs 3074 crore & Rs 1789 crore, respectively. Improvement in margins of 5 bps QoQ was witnessed led by lower cost of fund due to higher SA accretion. Provisions surged during the quarter to Rs 1043 crore, up 41% QoQ on the back of accelerated provisions of Rs 251 crore and partial provisioning of Rs 240 crore on account of fraud in two accounts. Accordingly, PAT came in lower compared to our estimates at Rs 1300 crore, up 32% YoY.

Outlook

With exposure to stressed account within control & lumpy provisions for it already done, earnings trajectory is seen reviving ahead. The bank has submitted a name for successor to Ramesh Sobti with approval from RBI pending. The bank aims to increase retail asset & liability though building a sustainable retail franchise. Return ratios at ~1.8-2.1% RoA and ~16-19% RoE & growth ~20% are reasonably strong numbers with major pain on stressed asset behind. We continue to maintain BUY rating on the stock with a revised price target of Rs 1700 (earlier Rs 1400), valuing it at 2.4x FY22E ABV.