Another stellar performance reported by Indusind Bank (IndusB) on both financial and operational fronts for Q4FY18, in line with our expectations. Strong NII growth at 20.4% YoY, healthy NIM (at ~4.0%) and controlled OPEX helped to maintain over 25% growth in the bottom line. IndusB reported divergence of Rs13,500 mn, however adjusting for repayment, NPA classification and ARC sale, the net impact remained at ~Rs1,860 mn which was recognized as NPA during the reporting quarter. Overall, GNPA stood at 1.17% v/s 1.16% in previous quarter even after considering the impact of divergence showed persistence of strong assets quality trend. First year (FY18) performance of the bank remained in line with the strategies set under the Planning Cycle (PC)-IV which will implement over FY18-FY20E. Furthermore, the merger with Bharat Financial (BFI) would strengthen the bank's presence in rural areas and would be earnings and margin accretive. We maintain our ‘buy’ rating on the stock with potential price of Rs2,100. At our recommended potential price, IndusB’s stock is available at P/ABV multiple of 3.9(x) to FY20E adjusted bookvalue of Rs534.2 pershare.
Q4FY18 Result Analysis: NII grew by 20.4% YoY and 6.0% QoQ in Q4FY18 (20.0% YoY and 4.1% QoQ in Q3FY18) on the back of strong advances growth and increase in yield on loan book. Interest income grew by 21.4% YoY and 8.5% QoQ (15.9% YoY and 8.5% QoQ) driven mainly by strong 28.2% YoY growth in advances book. The impact of interest cost which grew by 22.2% YoY and 10.5% QoQ (12.8% YoY and 0.2% QoQ in Q3FY18) was largely offset by strong growth in interest income leading to stable NIM at 3.97% in Q4FY18 v/s 3.99% in Q3FY18.
C/I ratio reduced by 100 bps QoQ to 45% due to the contained opex which grew by 10.7% YoY and 2.1% QoQ (15.0% YoY and 3.0% QoQ in Q3FY18). Other income growth remained subdued at (-)0.2% YoY impacted by lower treasury income while core fee income expanded at 11.3% YoY in Q4FY18 ablit lower than 21.7% YoY reported in the previous quarter. PAT grew by 26.8% YoY and 1.8% QoQ in Q4FY18 (24.7% YoY and 6.4% QoQ in Q3FY18) also bolstered by decline in P&C which reduced by (-)22.0% YoY. The bank was remained well capitalized with tier I capital at 14.6% and CAR at 15.6% and RoA (annulized) stood at 1.9% in Q4FY18.
Advances grew by 28.2% YoY and 12.8% QoQ on the back of strong growth in all three segments include corporate (40.7% YoY and 21% QoQ), SME (20.4% YoY and 11.9% QoQ) and retail SME (25.7% YoY and 7.7% QoQ). Retail advance growth was driven by strong traction in vehicles finance, other personal loans and credit card.
Compared to credit, deposits growth however remained lower at 19.8% YoY stretching C/D ratio unexpectedly to 95.6% v/s 88.0% in Q3FY18. CASA base continued to become strengthen with ratio increased to 44.0% surpassed the management target of 40% by FY20 under the planning cycle IV supported by increasing the liability franchise of the bank. IndusB opened 80 branches taking the total to 1,400 branches which are well distributed on geographical wise across the country.
Assets Quality Outlook: As per RBI audit, divergence was reported at Rs13,500 mn however, adjusting for loan to a cement based corporate whose merger got completed (Rs5,180 mn), timely repayment of loan (Rs2,578 mn), ARC sale (Rs1,188 mn) and already recognized NPA a/c (Rs2,360 mn), the net impact was limited to Rs1,860 mn which thereby included in GNPA during Q4. Gross slippage increased to Rs8,600 mn (Rs4,080 mn in Q3FY18) owing to higher corporate book slippage at Rs5,390 mn (Rs1,420 mn slippage reported at Q3FY17).
After reduction (R&U and write-off) at Rs6,540 mn, net addition to GNPA was ~Rs2,060 mn to Rs17,049.1 mn. Compared to 12.8% QoQ growth in advance during the quarter, risk weighted assets grew by 8.6% QoQ indicates improvement in the credit profile of the bank. GNPA and NNPA stood at 1.17% and 0.51% in Q4FY18 v/s 1.16% and 0.46% in Q3FY18.
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