Controlled opex supports operating performance; asset quality stable
* IndusInd Bank's (IIB) 1QFY19 PAT grew 24% YoY to INR10.4b (marginally below our estimate). NII rose 20% YoY, while the NIM moderated 5bp QoQ, driven by an increase in funding cost (+22bp QoQ).
* Total income grew 16% YoY due to muted other income (+12% YoY) on account of low treasury gains (INR1.37b v/s INR1.93b in 1QFY18). Core fee income grew 20% YoY, led by 32% growth in distribution income. Controlled opex growth of 12% YoY (CI ratio declined 80bp QoQ to 44.2%) led to PPoP growth of 20% YoY (+8% QoQ).
* Loan growth was led by robust growth in large corporates and small businesses, driving 30% YoY growth in the corporate portfolio. Consumer portfolio grew 28% YoY (+5% QoQ), led by strong traction in the CV loans, equipment financing and credit card segments. The share of retail loans to total book stands at 40% (46% if considered BBG as part of CFD).
* GNPA/NNPA increased 2.1%/2.2% QoQ. IIB sold INR1.49b of loans to ARCs. GNPA/NNPA ratios were in control at 1.15%/0.51% (-2bp/0bp QoQ).
* Other highlights:
(1) Robust CASA accretion continued with 51% YoY S/A growth. (2) Tier-1 ratio declined 29bp QoQ to 14.3% (CET1: 13.2%).
* Valuation and view:
IIB’s key focus is to scale up on its retail operations, led by a higher share of non-vehicle retail loans by FY20. The bank is targeting 25-30% loan growth, driven by continued branch expansion (aiming 2,000 branches by FY20 v/s 1,400 currently) and customer acquisition (+2x to 20m). Merger with BHAFIN will strengthen the bank's earnings profile and further boost its return ratios. We maintain our estimates and revise our target price to INR2,250 (4x FY20E ABV).
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