IndusInd Bank Q3FY17: Prabhudas Lilladher retain 'Buy' and revise target upwards

Prabhudas Lilladher | July 30, 2014, midnight

IIB remained undeterred from the demonetisation effect and continued its robust growth in NII and earnings beating our expectations with PAT growth of 29% YoY at Rs7.51bn (PLe: Rs6.83bn). Loan growth continued at 25% YoY with stable margins of 4.0%, leading to NII growth of 34.5% YoY. Fee income was in-line with trends, while credit cost was under control though there was slight deterioration in asset quality. CASA profile improved on back of demonetisation and as new SA account addition continued. We believe IIB will continue to deliver earnings of 27% over FY17-FY19E on back of loan growth CAGR of 26%, controlled credit cost and stable margins (70% book fixed in nature). We have revised our earnings estimates upwards by 1-3% for FY17E/FY18E and introduce FY19E earnings. We retain "BUY" with increased PT of Rs1,325 (up from Rs1,302) based on 3.2x Sep-18 ABV (rolled over from Mar-18).

Core performance unhindered:IIB's core PPOP growth of ~30% YoY remained strong and infact was better than Q2FY17. Good performance was on back of strong NII growth of 34.5% YoY on back of strong loan growth & stable margins of 4%. Margins were resilient on back 25bps QoQ improvement in cost of funds, while yields drop of ~13bps QoQ was from corporate book rather than consumer book. Fee was very slightly softer than usual mainly from slower loan processing fees but TPP/remit fees were strong, while opex was in-line with expectations.

Business growth contributing from all segments: Loan growth was strong at 25% YoY contributed from both corporate & consumer. Vehicle book was slightly slower with ~20% YoY growth led by slight slowdown in 2W/CV/UVs, while non vehicle book was strong led by LAP/CC/Personal loans. On liabilities side, CASA profile improved to 37% from both demonetisation & strong addition of new customers and despite Rs80bn of CA outflow (IPO float). Bank continues to guide similar loan growth ahead, while hoping the deposit addition seen post demonetisation is retained with the bank.

Asset quality remains to notch:Overall asset quality slightly deteriorated with GNPAs at 0.94% v/s 0.90% QoQ & NNPAs at 0.39% v/s 0.37% QoQ. Slippages were slightly higher at Rs2.81bn (but remained at 1.1% of loans) mainly from corporate book, while consumer book slippages remained stable. Bank used only Rs520mn of loans under the RBI 90day dispensation mainly in the vehicle book, while MFI book collections improved in ensuing period of demonetisation.

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