Hold IndusInd Bank; target of Rs 650: Emkay

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26 Aug, 2025 12:21

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Emkay Global Financial Services research report on IndusInd Bank“IndusInd Bank (IIB) reported PAT of Rs4.3bn (30% yoy) in-line with our estimate driven by stable NIMs qoq of 3.6%, continued traction in fee income (+31% yoy and 5% qoq) and healthy asset quality performance (GNPA flat qoq, credit cost contained at 40bp). Loan growth remains healthy but have come down from historical trends to 22% yoy. In consumer finance, vehicle financing portfolio was flat yoy and qoq, whereas growth in non-vehicle retail loans was strong at 13% qoq and 70% yoy (formed 6.6% of loans). Traction in SA deposits continued (+8% qoq and 33% yoy) and as a proportion of overall deposits has increased to 17.3% v/s 16.2% in 2QFY14. IIB is well positioned in the current environment of easing liquidity and would be a key beneficiary of pick-up in auto loans, however premium valuation factors the same. Hold.” “NIM for the quarter was stable qoq at 3.6%, mainly as lower cost of funds (down 11bp qoq) compensated for 14bp qoq fall in yield on assets (higher disbursement of foreign currency loans and lower corporate yield). Improvement in CASA ratio & reduced borrowings helped contain cost of funds. Going forward, management believes shift in loan mix to consumer financing where blended yields are higher by 400bp+ and benefits of benign wholesale rate and higher CASA ratio will contain cost of funds and inturn helping NIMs. IIB’s core earnings grew at a healthy pace of 23%+ yoy, driven by NII growth of 19%yoy and strong traction in fees (+31% yoy). The drivers of fees were IB (+41% yoy, 7% qoq) and forex income (+35% yoy and 3% qoq), however, growth picked up in other fee income streams as well viz. distribution fees (13%+ qoq and 25% yoy) and loan processing fees (+5% qoq and 31% yoy – which is a positive). The fees from investment banking business stood at almost 18%+ of core fees and 14%+ of PBT. Even as the management remains reasonably confident of the growth in this business and sees tremendous potential, the lumpiness could create volatility in the earnings as this business is dependent on the deal flows in loan syndication.” “IndusInd performance over the three vectors viz. growth, asset quality and earnings remained strong through-out the down cycle of FY11/1HFY15. During this phase bank also diversified its product offerings in retail and leveraged on its corporate relationship, making it less vulnerable to a particular segment/sector. With mere 80bp market share and healthy Tier I Capital of 12%+ we expect market share gain to continue over medium term and factor loan CAGR of 26% over FY14/17. We do not envisage downside risk to our loan growth estimates as IIB has levers (selling down less loans, less project loan exposure) available in the balance sheet. NIMs have improved from lows of 1.6% in FY08 to 3.7% in FY14. The improvement is combined impact of (1) strong improvement in CASA ratio, better ALM and (2) better asset yield (pricing power and improvement in yield on investments). Now with share of high yielding consumer loans in overall loans expected to increase in FY16, NIMs have a positive bias. Further, as reliance on bulk deposits still remains high at 40-45% of deposits, cost of funds is expected to fall in a moderating interest rate environment aiding NIM expansion.” “Management is confident of bottoming out of CV cycle, which would help reduce concerns over asset quality and also contribute to balance-sheet growth, however we prefer to wait and watch as economic indicators remain weak and our channel checks suggest that recovery still some time away. Hence, we model credit cost of 60bp over FY14/17, limiting the downside risk to our estimates. We largely maintain our earnings estimated for FY15/16. Return ratios to remain strong with RoA of ~1.8% and RoEs rising to 19% by FY16. The stock currently trades at 2.8x ABV of FY16 which to an extent captures growth potential and recovery in CV cycle, hence maintain Hold on the stock with a Target Price of INR650,” says Emkay Global Financial Services research report. 

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