* Robust Operational performance continues:
IndusInd Bank (IIB) has posted stable set of numbers in Q1 FY2018 with strong topline growth despite some niggling asset quality issues. The bank witnessed a robust growth of 31% YoY (6% QoQ) of its core NII at Rs 1774 crore on the back of robust business growth and healthy margins. Net Interest Margin (NIM) were maintained at 4.00% (4% in Q4 FY2017) and continues to be best-in-class. IIB’s Business traction continued to be healthy, with Deposits at Rs 133,673 crore (up 31% YoY) and Advances at Rs 1,16,407 crore (up 24% YoY), which notably comes at an impressive ~4x system credit growth. The loan book growth was led by its retail book (up 24% yoy), corporate book (up 26% yoy ) and non vehicle finance (up by 35%).
* Healthy traction in Fee income, Retail business:
IIB’s Non-Interest Income for Q1 FY2018 was Rs 1,167 crore, posting a strong 20% YoY growth on the back of healthy core fee income growth of 25% YoY. Fee Income accounting for over 80% of the total other income is positive as it is a sustainable income stream. Retail business continues to expand at a faster clip, with IIB’s CASA ratio up at 37.8% from 36.9% in Q4FY2017.
* Despite Asset quality dip, pragmatic management lends comfort:
Prima facie IIB’s asset quality dipped with GNPAs rising by Rs 20% qoq to Rs 1272 crores, to 1.09% as 2 accounts slipped from restructured book. IIB has not written back and utilized the provision of Rs 122 crores done for JP Associates exposure to create floating provision (Rs 70 crore), Standard asset provision (Rs 33 crores) and accelerated provision on Security Reciepts (SRs) and MFI book of Rs 10 crore each. This indicates the pragmatism of the management. IIB has exposure to only 3 of the 12 named accounts under Insolvency and Bankruptcy code (IBC), which is ~Rs 50 crores and has fully provided for 2 of them, while ~Rs 12 crores remains to be provided. Its microfinance book is also well provided for and may see ~Rs25 crores provision in Q2. Its Telecom exposure is rated AA and above.
* Outlook – strong operational performance; management commentary reassuring:
IIB has maintained a high growth momentum without compromising on its strong asset quality over last few years. Going forward, we expect the bank’s growth momentum to continue, while its Cost-to-Income ratio (C/I) should trend down. Going forward, the management commentary on asset quality is reassuring.
IIB currently trades at 3.4x FY2019E Price-to-Book Value (P/BV), which we feel is reasonable for a bank in a high growth phase with high ROE, ROA and excellent asset quality. IIB’s resilient asset quality is a key positive and a distinct differentiator among peers. We maintain our “Positive” stance and expect a potential 10- 12% upside from the current levels.
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