Buy IndusInd Bank; target of Rs 2011: HDFC Securities

HDFC Securities' research report on IndusInd Bank

Asset Quality Stable: After the IL&FS-led jump in 4QFY19, G/NNPAs are now at 2.15/1.23%. Slippages moderated to Rs 7.25bn (1.53% ann). IIB’s exposure to stressed cos (still std.) fell by ~Rs 3bn QoQ (1.67% vs. 1.9% QoQ) and SMA I & II halved QoQ to 35bps. We still factor elevated slippages (2.4% over FY20-21E) and LLPs of 1.3% over FY20-21E. PCR (43%) consistently lags larger peers. Healthy Book Growth: In spite of higher sell downs (~Rs 75bn vs. ~Rs 67bn QoQ), and controlled growth in the microfinance book, loans grew ~20/3% YoY/QoQ. Ex-BHAFIN, loan growth was healthy at ~26/2%, led by sustained traction in the VF (23%) and PL (58%) segments. Abundant opportunity across asset segments keeps us upbeat on IIB’s growth prospects (est. 28% loan CAGR over FY20-21E), notwithstanding a slowdown in auto sales. BHAFIN Boosts NIMs: After the 4Q dip, NIMs re-bounded ~50bps to 4.05%, led by lower interest reversals and a rise in the share of the high yielding micro book (mostly BHAFIN). We believe that the uptick in high yielding loans in the mix and the large (~44%) fixed rate book can drive NIMs hereon to as much as ~4.4% by FY21E. Near term outlook: The stock should remain range bound given (1) An expected change in leadership, and (2) Std exposure to stressed cos.

Outlook

After a blip in 4Q, IIB is back on track with stable asset quality and a dip in exposure to stressed cos. In-line operating metrics and the sharp dip in provisions (72% QoQ) drove up net earnings (2.1x). Maintain BUY with a TP of Rs 2,011 (3.5x Jun-21 ABV of Rs 575).