Buy IndusInd Bank; target of Rs 1861 KRChoksey

KRChoksey's research report on IndusInd Bank

IndusInd Bank completed the merger of Bharat Financial with its subsidiary IndusInd Financial Inclusion Limited on 4 July, 2019. Advances grew 28.4% YoY (+3.8% QoQ) in Q1 FY20. Deposit mobilization was robust with growth of 26.3% YoY (+2.9% QoQ). CASA fell by 38 bps YoY while savings deposit growing by 21% YoY in Q1 FY20. NII stood at INR 2,844 Cr increasing by 34.0% YoY/27.4% QoQ. NIMs stood at 4.05%, improving by 13 bps YoY/ 46 bps QoQ. This significant growth could be attributed to huge growth in retail lending business.Total Income at INR 4,507 Cr, up 31.6% YoY/18.9% QoQ which the bank attributed to the strong growth in their fee income (+22% YoY). PPOP at INR 2,591 Cr is up by 35.6% YoY/25.3% QoQ due to reduction in operating expenses and improvement in NIMs. Asset quality risks were mostly contained with GNPAs at 2.15% (+5 bps QoQ/+100 bps YoY) while NNPAs at 1.23% (down 2bps QoQ/+72 bps YoY) while PCR stood at 43.3%. PAT at INR 1,433 Cr increased 38.3% YoY (+298% QoQ) translating into annualized ROA/ROE of 2.05%/18.5%, respectively.

Outlook

We apply a P/Adj.BV multiple of 3.3x to the FY21 adj. BVPS of INR 566 to arrive at a target price of INR 1,861 per share; an upside of 26.3% over the CMP. Accordingly, we reiterate “Buy” rating on the shares of IndusInd Bank.