IndusInd Bank Ltd. share price target

IndusInd Bank's (IIB) Q3FY20 PAT grew 33% YoY to Rs 13bn, largely due to 34% YoY growth in NII and 5bps QoQ NIM expansion to 4.15%.

While the operating performance was healthy (NII, margins, business growth, particularly deposits/PPoP), higher slippages remain a drag and also a reason for investor caution in a period of management transition. We cut our EPS estimate for FY20/21 by 6%/3%, primarily as we factor in our assumption of higher credit cost and slippages. Maintain PAT of INR13b (+33% YoY) came in lower than our estimate of INR15b owing to higher provisions of INR10.4b as the bank created accelerated provisions of INR2.5b. NII was up 34% YoY at INR30.7b (3% beat) as margins expanded 5bp QoQ to 4.2%. PPoP increased 30% YoY to INR27.6b (in-line). Loan growth moderated to 20% YoY, led by slowdown in the CV and corporate portfolios. Deposits were up 23% YoY, led by a 30% YoY increase in SA deposits (+12% QoQ). CASA mix thus improved by 100bp QoQ to 42.4%, despite a slight moderation in current account deposits.

The bank's various tech initiatives are likely to contribute to B/S growth, higher granularity and profitability. However, our estimates are unchanged as incremental benefits will be discernible only over time. A high yielding fixed rate book will contribute to robust RoAAs (1.94% over FY20-22E). Management transition and asset quality are near term risks. Maintain BUY with a TP of Rs 1,904 (3.0x Sept-21E ABV of Rs 635). We visited IIBs microfinance field operations and attended its analyst day. The presentations made were representative of ~65% of the banks demand deposits and retail TDs, 75% of its loan book and nearly half its fee income. Broad strategies included a sharp focus on IT (particularly to ramp up synergies in microfinance and improve risk management), building retail credit beyond Vehicle Finance and improving deposit granularity (IIB has lagged peers for a while) by strengthening its CB (consumer banking) franchise.

Indusind Bank organized a two-day event to showcase its progress in the Change in Estimates | Target | Reco Bhafin acquisition and also present on the non-corporate parts of the business for the way ahead. (i) On the micro-finance piece, we were struck by...

Indusind Bank organized a two-day event to showcase its progress in the Change in Estimates | Target | Reco Bhafin acquisition and also present on the non-corporate parts of the business for the way ahead. (i) On the micro-finance piece, we were struck by...

IndusInd Bank Limited is a Mumbai based private bank established in 1994. The bank offers commercial, transactional and electronic banking products and services. IndusInd Bank was inaugurated in April 1994 by then Union Finance Minister Manmohan Singh and is the first among the new-generation private banks in India. The Bank is engaged in granting loans to various segments, such as industries and businesses, and retail loans; financing a range of vehicles or equipment to individuals, and priority sector lending. The Bank's segments include Treasury, Corporate/Wholesale Banking, Retail Banking and Other Banking Operations. The Treasury segment includes investment portfolios, profit or loss on sale of investments,foreign exchange transactions, equities, income from derivatives and money market operations. The Corporate/Wholesale and retail Banking segment includes lending...

Loans and advances grew 20.8% YoY and 1.9% QoQ, with consumer finance accounting for 55% of the loan book. In Q2FY20, the bank's deposit base increased 23.2% YoY and 3.3% QoQ with CASA up 17.0% YoY but down sequentially by 0.8%....

IndusInd Bank has reported the net profit for the merged entity at Rs 1383.37 crore for the quarter ended September 2019 (Q2FY2020) compared with Rs 1432.50 crore in Q1FY2020. The figures for Q2FY2020 and H1FY2020 include the figures of Bharat Financial Inclusion on account of completion of merger. The asset quality remained healthy, while bank has posted strong 5 bps sequential improvement in the net interest margins (NIM) to 4.10% in Q2FY2020. The non-interest income growth of the bank was strong, which is mainly driven by more than two-and-half fold jump in treasury income, while bank continued to post healthy growth in core fee income....

Our earnings estimates fall by 6% over FY20-22E, with slower growth, higher NPAs and credit costs. IIB's significant slips on asset quality, broader macro stress and the upcoming leadership change preclude lofty valuations (our target multiple has been 3.5x 1 yr-fwd ABV for over seven years). We are constrained to reduce this to 3.0x for now. With its top-drawer pvt banking franchise is intact, even if challenged, we believe IIB has the capability to pull back from this slip. A smooth leadership transition amidst the stress buildup will help immeasurably. Most other boxes are ticked. Maintain BUY. IIBs 2QFY20 was mostly inline. Several operating parameters (NIM, deposit growth and C-I) were stable. However, slower growth and evident stress build-up (higher slippages and SMA II) raise concerns. Maintain BUY with a TP of Rs 1,904 (3.0x Sept-21E ABV of Rs 635).

Owing to the slowdown, IndusInd Bank's credit growth witnessed moderation as growth was at 21% YoY. There was overall moderation in credit growth. However, de-growth within the corporate book due to repayment, slowdown in auto & subdued microfinance growth due to flood in multiple states impacted growth. On a sequential basis, consumer finance book grew 3.5% while growth in corporate book remained flat. Further, the management guided at credit growth of ~20-25% for FY20E. The bank's focus continue on garnering retail deposits, which grew 28% YoY. In...