Indusind Bank Ltd. (IndusB) posted strong performance for Q3FY18, in line with our estimates, on business growth as wellas financial parameters. Credit book of the bank expanded by 25% YoY and low cost deposits share increased to 43% leading to 20% YoY expansion in NII. While the growth remained robust, IndusB maintained stable assets quality (GNPA-1.2%) and NIM at ~4.0% during the quarter. We prefer IndusB mainly owing to its likely robust advances & deposits growth and improving productivity, which could drive PAT by 29% CAGR over FY17-20E, with RoA of 1.9% over the same period. 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 3.95(x) to FY20Eadjusted bookvalue of Rs532.7 pershare.
Q3FY18 Result Analysis: Net interest income (NII)grew by 20.0% YoY and 4.1% QoQ in Q3FY18 (24.7% YoY and 2.6% QoQ in Q2FY18) driven by high credit growth and increase in share of CASA deposits. Interest income increased by 15.9% YoY while lower than previous quarter growth of 21.3% due to pressure on yield of corporate loan book but this was offset by modest increase in interest cost (12.8% YoY in Q3FY18 v/s 18.8% YoY in Q2FY18) driven by strong growth in CASA deposits which increased by 41.8% YoY with a share to 42.9% higher than planning cycle set target of 40% by FY20. Thereby NIM remained stable at 3.99% in the quarter under review v/s 4.0% in previous quarter. OPEX grew by 15.0% YoY and 3.0% QoQ (19.7% QoQ & 1.6% in Q2FY18), despite this C/I ratio increased by 3 bps to 46.0% as other income rose by less rate compared to previous quarter. Other income increased by 16.7% YoY during the quarter under review (22.4% YoY in Q2FY18) due to less treasury (trading) income which declined by 17% YoY to Rs1,100 mn v/s 1,320 mn due to the increase of yield level in the economy. P&C at 8.9% YoY and (-)19.6% QoQ (37% YoY in Q2FY18) witnessed a modest increase and PAT grew by 24.7% YoY and 6.6% QoQ to Rs9,362.4 mn.
Balance Sheet Growth: Advances grew by 25.1% YoY and 4.4% QoQ in Q3FY18 (24.5% YoY and 5.8% QoQ) driven by all the three segments include corporate, SME and retail. Corporate credit grew by 29.6% YoY and 1.3% QoQ as the bank and the bank is optimistic over the corporate book future growth due to emerging demand for working capital loans and shifting of business towards the bank credit from bond market due to the hardening of yield. SME book grew by 22.6% YoY and 3.3% QoQ in the quarter under review and total proportion of it was 30.2% of advances book by Q3FY18. On the other hand, retail advances continue to grow at higher pace driven by the bank strategy to focus on retail segment through increasing liability franchise. Retail credit grew by 23.9% YoY and 7.4% QoQ mainly driven by unsecured personal loans which grew by 64.2% YoY, credit card book at 55% YoY, equipment financing book at 28.6% YoY and vehicle loans book (composite) by 19.1% YoY. The share of retail book increased to 41.3% in Q3FY18 v/s 40.2% in previous quarter, one step closer to the bank target to increase it to 50% by FY20E. On the other hand, deposits increased at 22.5% YoY and 3.3% QoQ on the back of strong growth witnessed in SB deposits which grew by significant 67.8% YoY and 5.2 QoQ as the bank leveraging the benefit arising from healthy expansion in liability franchise of the bank over the last few fiscals. Share of CASA or low cost deposits increase to 42.9% surpassed the management target of 40% by FY20 under the planning cycle IV. IndusB opened 70 branches taking the total to 1,320 branches which are well distributed on geographical wise across the country. Further, with the CAR ratio at 15.8% and Tier I capital at 14.1%, the bank is well capitalized to fund the assets growth.
Assets Quality Outlook: Gross slippage reduced to Rs4,080 mn and reduction (R&U and write-off) at Rs2,550 mn and thereby net addition to GNPA was ~Rs1,530 mn to Rs14,987 mn. GNPA ratio increased by 8 bps QoQ to 1.16%, however remained stable compared to business size and current market scenario. NNPA ratio reported at 0.46% in Q3FY18 v/s 0.44% in Q2FY18 with PCR maintained at 60%. Further, slippage in corporate book reduced to Rs1,420 mn in Q3FY18 v/s Rs2,850 mn in Q2FY18 while in consumer book it was increased to Rs2,660 mn in Q3FY18 v/s Rs2,130 mn in Q2FY18. Compared to 25% growth in balance sheet over the last 12 months, risk weighted assets grew by 17% indicates improvement in the credit profile of the bank.
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