Buy IndusInd Bank shares as revenue growth strong: Kotak Institutional Equities

Oct 16 2013, 10:55 IST
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SummaryKotak maintains 'buy' rating on IndusInd Bank stock with increased target price of Rs 470 from Rs 430.

We maintain ‘buy’ on Indusind Bank and increase the target price to Rs 470 (from Rs 430), thereby valuing the bank at one-year forward 2.7x P/B and 18x EPS.

We maintain our positive view on the bank, noting its key strength in the highly profitable retail business, strong tier-1 ratio, healthy fee income business and execution on the liability side.

The bank's Q2FY14 result was marked by a strong performance with earnings growth of 32% y-o-y, leading to 35% revenue growth. Despite strong headwinds on the funding side, IndusInd Bank navigated the quarter quite well with margins declining only 7 bps q-o-q through a combination of base rate hike, aggressive refinancing of PSL portfolio and foreign currency borrowing.

Loan growth trend was broadly maintained (24% y-o-y) though retail growth was slower (18% y-o-y). Gross NPLs remained broadly stable at 1.1% of loans with limited stress across product segments. Loan growth stays ahead of industry, led by LAP and corporate loans.

Overall loans grew 24% y-o-y led by growth in corporate advances (SME and large corporate segment), 31% y-o-y, and LAP/home loans which grew 1.14x. Moderation in growth in CV loans was conspicuous with growth in CV loans at 8% y-o-y and small CVs/three-wheelers at 2% y-o-y. Overall loans to vehicle segment grew 14% y-o-y, cushioned by growth in loans to cars at 31% y-o-y, UVs at 25% and two-wheelers at 29% y-o-y. Loan mix between retail and non-retail loans remained unchanged at 49:51.

- Kotak Institutional Equities

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