IndusInd Bank Ltd. share price target

Merger to boost NIMs, operational impact to be gradual: With the mergerof BHAFIN with IIB, NIMs will improve 30-40bps on immediate basis, taking overall NIMs to ~4.0%. This will be led by accrual on overall yields by 70-80bps. While cost of funds will be up by ~50bps, IIB can re-finance borrowings in order to cut it down, leading NIMs beyond 4.0%- into the league of top private banks. Operationally benefits of the merger will accrue over time especially on opex...

We downgrade our rating on Indusind Bank from BUY to Market Performer with revised TP of 1693 on worries of higher credit cost than guided by the bank and likely change in the mgmt. For Q4FY19, the bank reported PAT of 3.6 bn which was down by 62% yoy led by higher provisioning on IL&FS; exposure while operating profit growth was strong at 34%. Importantly, the bank has exposure to the troubled cos including names like Essel Group and Reliance ADAG Group. Jet Airways is 1.9% or 35.4 bn while these are yet to be recognized as NPAs. In our view, there is outsized possibility of these assets turning into NPAs leading to higher credit cost. In our view, credit cost estimate could be at 1.2% for FY20 vs. mgmt. guidance of 0.6%....

loan book. Bank has strongly expanded network strength adding new 107 branches in Q4FY2019, raising the branch count to 1665 at end March 2019. The NPAs of the bank have increased with the jump in fresh slippages to Rs 3688 crore with the classification of exposure of Rs 3004 crore to IL&FS; group as NPA. The bank has also identified...

The loans and advances of the bank grew by 29% on a YoY basis, led by Indusind Bank, a part of the transnational consumer (27% YoY) and microfinance (227% YoY) growth. conglomerate Hinduja Group, was incorporated in In Q4FY19, the deposit base of the bank has increased by 29% YoY, 1994. It was set up particularly to mobilize funds with a CASA growth of 26% YoY, and the CASA mix forms around 43%. Net Interest Margin (NIM) declined 13bps YoY and 38bps sequentially, due to declining yield on advances and rising cost of funds. Ex. IL&FS;, healthy operating performance, with operating profit and...

Worries on asset quality post the IL&FS exposure are mostly in the price now. The (1) Lower than feared exposure to potentially stressed groups, (2) Contracted SMA II, and (3) Alleviation of concerns on fee income recognition are heartening. We thus retain our target multiple at 3.5x. The acquisition of a hi-growth, hi-yielding business (BHAFIN) holds profitable and synergistic promise. Leadership succession is also a medium term monitorable. As expected, IIBs P&L; was significantly hit by its exposure to the stressed IL&FS; group. However, core operating metrics remain largely intact. The exposure to other potentially stressed groups is a monitorable. Maintain BUY with a TP of Rs 1,964 (3.5x Mar-21 ABV of Rs 561).

With IL&FS; pain now largely behind, momentum in balance sheet continued with a loan/ deposit growth of 29% driven by across segments. NII growth remained muted at 11% due to a one-off interest reversal, whereas, non-interest income came in strong at a 29% YoY growth. As guided by the bank earlier, it intended to start FY20 afresh, hence it recognized its entire IL&FS; exposure as NPA and provided heftily for the same. Following the blow, GNPA/NNPA detoriated to 2.1/1.2% by 97/62bps sequentially. Although the quarter took a one time hit and turned out to be a drag on the bottom-line, there are not many uncertainties left to cast a hang on the book in the new financial year. Its exposure to Zee, DHFL and ADAG along with a few others stands at...

Asset quality took a hit on back of fresh slippages worth | 3688 crore of which | 3000 crore was for exposure to IL&FS.; Absolute GNPA & NNPA increased ~101% & 118% QoQ to | 3947 & | 2248 crore, respectively. Accordingly, GNPA & NNPA ratio were at 2.1% & 1.21%, respectively. The bank has maintained higher provisions for IL&FS; at | 1650 crore (55% of exposure) (holdco (70%) & SPV (25%)). The bank's exposure towards other stressed company was (ADAG, Essel & DHFL) at ~1.9% of the loan book. On the back of classification of IL&FS; as NPA, the bank reversed | 153 crore...

18%/22%, while PAT declined 8.5% YoY to INR33b. Total income increased 18% YoY, led by healthy other income growth of 29% YoY. Core fees rose 28% YoY, led by forex income and loan processing fees. Opex growth (+19% YoY) was slightly higher, leading to PPoP growth of 17% YoY. IIB guided for a C/I ratio improvement of 150bp to 42% over FY20. Loan growth stood at 29% YoY, led by robust traction across both corporate and consumer portfolios. The share of retail loans in total book stands at 39% (52% incl. MFI & business banking). Deposit growth, too, picked up...

Both CA & SA has seen strong growth of 26% much better than peers IIB's earnings were below estimates at Rs3.6bn mainly on bank providing incrementally Rs11.2bn on recognizing IL&FS; which had been indicated...

The GNPA/NNPA ratios are increased marginally to 1.13%/0.59% on YoY basis due to higher slippages from corporate and an additional contingent provisioning for IL&FS; exposure. We value the bank at 2.7x BV of FY21 and maintain our Hold rating with a...