Buy IndusInd Bank; target of Rs 1830: Motilal Oswal

Motilal Oswal 's research report on IndusInd Bank

IIB reported merged PAT of INR14.3b (standalone: INR12.2b) for 1QFY20, largely led by lower provisions of INR4.3b (our estimate: INR8.1b). NII stood at INR28.4b (~3% miss; standalone: +14% YoY to INR24.2b), while the NIM improved to 4.05% from ~3.6% in 4QFY19. Total income improved to INR45.1b (in-line), led by healthy other income growth of 28% YoY (standalone: +23% YoY). Core fees rose 22% YoY, led by growth in loan fees and addition of PSLC income due to the BHAFIN merger. Opex stood at INR19.2b (3% miss), driving a 290bp QoQ improvement in the C/I ratio to 42.5%. On a standalone basis, opex was up 18% YoY to INR17.8b, while the C/I ratio stood at 44.3% (120bp QoQ improvement).

Outlook

However, we conservatively factor in higher credit cost of 100bp/80bp for FY20/21 due to our concerns on prevailing economic slowdown and elevated stress in select lending segments. The clarity on management succession is going to be critical though we nevertheless estimate FY20/21 RoA of 1.9%/2.1%, buoyed by merger with BHAFIN. We value the stock at INR1,830 based on 2.8x FY21E BV.