Buy IndusInd Bank; target of Rs 1734: Edelweiss

Edelweiss' research report on IndusInd Bank
IndusInd Bank (IIB) delivered qualitatively strong Q1FY18 performance with core operating profit moving up >33% YoY. Key positives: a) CASA: Savings growth accelerated (up >65% YoY), a reflection of evolving franchise; b) this benefitted funding cost, but IIB kept NIMs steady (at 4%) in a bid to move up the quality curve (risk weight grew 1% QoQ, while loan grew 3% QoQ); c) in line with Phase-4 target, benefits of efficiency have started to play out as cost efforts are translating; d) despite provision reversal benefits available (INR1.2bn), the bank chose to make floating provisions (INR700mn) and accelerated specific provisions, thus coverage rose to 60%; e) fee income showed mixed trend, with some seasonality in processing fees. IIB looks structurally poised to achieve its Phase-4 targets and repeat its success of earlier phases. Given strong track record, superior RoA and well-capitalised position, execution risks are minimal. Maintain ‘BUY’.

Outlook

We would argue that this mix is about as supportive as it gets for valuations and would lead IIB to the highest end of Indian private bank valuations – thus we raise our target multiple to 3.8x FY19E P/BV (earlier 3.3x), leading to TP of INR1,734 (earlier INR1,560). Maintain ‘BUY/SP’.

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