Buy IndusInd Bank; target of Rs 1920: ICICI Direct

ICICI Direct's research report on IndusInd Bank

PAT increased 25% YoY to Rs 880 crore, led by strong growth in NII (up 24.7% YoY to Rs 1821 crore) and healthy other income growth of 22.4% YoY to Rs 1188 crore (core fee income rose 23% YoY) • Business growth remained healthy with 24.5%, 25.9% YoY growth in advances, deposits, respectively. CASA ratio surged ~420 bps QoQ, led by higher accretion in saving deposit led by new government relationship. Within advances, both corporate and consumer book witnessed healthy traction at 26% and 22% YoY, respectively • Asset quality remained largely stable QoQ. GNPA, NNPA ratios came in flattish QoQ at 1.08% and 0.44%, respectively. RA also remained stable at 0.16% of advances • The bank does not have any large exposure to accounts in the second list of RBI to be referred to NCLT. Though quantum of exposure is unknown, number of accounts in the list was at six for which the bank provided ~Rs 30 crore provision during the quarter

Outlook

IIB has continued to deliver a strong performance leading to continuous re-rating. Consistent return ratios of ~18% RoE & ~2% RoA provide comfort. We largely maintain our estimates and expect PAT CAGR of 25% to Rs 4481 crore by FY19E. The bank is considering Bharat Financial inclusion for prospective amalgamation that is value accretive in terms of higher margin business. Also, warrant issuance to maintain promoter stake in case of merger of the said MFI business is on cards. Keeping in perspective the above strategic developments and fundamental strength, we upgrade our rating to BUY. We revise our target price to Rs 1920 (valuing at 4.3x FY19E ABV and 25x FY19E EPS) vs. Rs 1650 earlier.