AnandRathi
For IndusInd Bank, the strategic Bharat Finance deal would be synergistic in the medium term. Growth would be primarily driven through the focus on the retail portfolio, as management intends to rebalance the corporate- and retail-book ratio to 50:50 (from 60:40).
Credit growth grew 29.4% y/y in Q1-FY19, driven by secular growth across all segments, led by corporate (up 30% y/y), vehicle and retail (both up 28% y/y).
We expect 26% loan growth in the medium term. Asset quality improved with slippages easing to 1.26% of loan book (down 83bps y/y, 111bps q/q) and credit cost softened to 55bps.
We expect the bank to maintain its stable asset quality over FY19-20 due to overall improvement in the rating profile of its corporate book and declining risk weightings of its vehicle-finance book.
NIM to be resilient in the medium term, which was 3.92% in Q1-FY19, down 5bps sequentially, on account of a sharp increase in the cost of funds (up 35bps sequentially). Nevertheless, we expect NIM to be resilient at current levels on the back of the strong CASA franchise (43.4%) and an increase in the share of the retail portfolio.
With better headline asset quality parameters and loan-growth prospects over FY19-20. We have a buy recommendation with a target of Rs 2248 based on the two-stage DDM Model. This implies a 4.15x P/ABV multiple on its FY20e book.
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