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Maintain ‘buy’ on IndusInd Bank with TP of Rs 2,080

IndusInd Bank’s Q1FY19 earnings were in-line with expectations and reaffirms our confidence that the bank is structurally poised to achieve Phase IV targets and achieve scale with quality.

IndusInd Bank, IndusInd Bank Q1FY19 earnings,  CASA, PAT growth, NCLT, MCLR
Maintain ‘BUY’ with TP of Rs 2,080. Despite its Phase IV target of lowering corporate loan proportion to 50%, structural opportunities are driving it further up — corporate moved up 30% YoY (NCLT refinancing). (PTI)

IndusInd Bank’s Q1FY19 earnings were in-line with expectations and reaffirms our confidence that the bank is structurally poised to achieve Phase IV targets and achieve scale with quality. Loan growth momentum of 29%, sustained CASA, and operating leverage supported 20% YoY NII and >27% YoY operating profit growth. MTM loss of Rs 86 crore fed into softer PAT growth of 24%. Asset quality was steady with slippages at 1.3%, credit cost at 14bps and GNPLs at 1.15%. Key monitorables will be: a) below trend core fee income growth; and b) merger update with BhaFin. Given strong track record, superior RoA and well-capitalised position, execution risks are minimal.

Maintain ‘BUY’ with TP of Rs 2,080. Despite its Phase IV target of lowering corporate loan proportion to 50%, structural opportunities are driving it further up — corporate moved up 30% YoY (NCLT refinancing). Impressively, growth in vehicle portfolio is also sustaining, with commercial vehicle growth more of a trend now. On diversified growth levers, we expect IIB to swiftly capitalise on the recovery momentum and continue to gain market share. Meanwhile, NIMs were down 5bps QoQ to 3.92% on higher deposit cost, bank has raised MCLR (40bps in Q4FY18) which will help cushion NIMs. Core fee income continued below trend at 20% growth which restricted overall revenue momentum – a key monitorable.

Slippages were curtailed at R480 crore (1.3%), which in-turn restricted GNPLs to Rs 1,740 crore (up 2% QoQ). Overall stress was stable at 1.2%. Credit cost was at 14bps (versus 19bps for Q4FY18 and 62bps for FY18). Falling proportion of BBB-and-below rated corporates, leading to lower RWA/assets is encouraging. IIB has delivered yet another steady quarter. Even more commendable is that: 1) IIB is now delivering a mix of sustainable earnings growth with granularity; 2) liability franchise and balance sheet has been strengthening; and 3) outlook is optimistic.

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First published on: 12-07-2018 at 03:03 IST
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