Hold IndusInd Bank; target Rs 417: Firstcall Research

Firstcall's research report on IndusInd Bank

"IndusInd Bank similar to its peers is going through stressful economic scenario. As justified by its results, other income increased at a higher growth rate than its core income. Although the YOY increase was 48 percent for other income and 40 percent for NII, the quarterly increase was a dismal 3 percent for net interest income and 28 percent for the other income category. The NIM increased at an insignificant 0.02 percent in June quarter over the previous quarter. The Net Interest margin in Q1 FY13 was 3.22 percent whereas in Q1 FY14 it stood at 3.72 percent, thus the YOY increase in NIM was also very low at 0.50 percent. The provisions and contingencies have increased by a whopping 147 percent as compared to corresponding quarter in the previous year which implies that although the NPA ratio is low at 0.21 percent, the asset quality of the bank is under stress. Although the bank has low exposure to problematic sectors such as infrastructure and power, still the exposure is high for personal loans. In the present scenario, where RBI is tightening liquidity in the economy through various measures, the asset quality of the bank may deteriorate further." "The top players of the banking sector are making efforts to maintain their profitability in spite of stringent liquidity conditions and low investment scenario. IndusInd has infused Rs. 20000 mn as capital in December 2012. Thus the capital adequacy of the bank is sufficient to meet Basel III norms. The tier I capital of the bank is at 13.49 percent and Tier II capital stands at 1.36 percent. The capital adequacy ratio of the bank stands at 14.85 percent as on June 2013. The cost to income ratio of the bank has improved to 44.21 percent in Q1 FY 14 from 49.68 percent Q 1 of the previous year. The basic fundamentals of the bank are strong and the YOY ratios are robust. But the quarter ratios show stress and deterioration due to poor macro economic environment. Incase the investment climate of the economy is improved; the banking sector will be the first one to be benefitted." "Future Outlook and Conclusion: At the current market price of Rs.380.35, the stock P/E ratio is at 17.63 x FY14E and 14.57 x FY15E respectively. Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.24.62 and Rs.29.80 respectively. Net Interest Income and Net Profit of the company are expected to grow at a CAGR of 27 percent and 25 percent over 2012 to 2015E respectively. Price to Book Value of the stock is expected to be at 2.55 x and 2.17 x respectively for FY14E and FY15E. The banking sector as a whole is going through difficult phase which may continue for the next few quarters, but the basic fundamentals of the bank are robust and the scrip will perform well incase macroeconomic scenario changes. Thus we recommend 'HOLD' for IndusInd bank or Medium to Long term investment with a target price of Rs 417," says Firstcall Research report. Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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