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Focus to shift on fundamental performance; estimate FY25 RoE at 18%

? The RBI approved the re-appointment of Mr. Sumant Kathpalia as the MD & CEO of IndusInd Bank (IIB) for a period of two years, effective 24th Mar’23, after his current term ends on 23rd Mar’23. There was uncertainty around his extension and all sorts of conjectures were made with respect to the tenure that will get approved by the central bank.

? We note that there had been instances in the past where despite a shorter term approval, the MD & CEOs of other banks had been able to secure a three- year regular term during subsequent renewals. Refer to Exhibit 1 for more details.

? IIB’s stock price has been under pressure not only due to the macro uncertainty but also because of the clarity around the extension. We thus believe the RBI approval will now shift the focus to the fundamental performance of the bank.

? IIB has been demonstrating a healthy improvement in operating performance fueled by a pick-up in loan growth, strengthening liability franchise and improving asset quality. We estimate IIB to deliver 20% loan CAGR over FY23-25.

? Asset quality risks are receding with a gradual reduction in slippages, which will drive a continued moderation in credit costs. We estimate IIB to deliver ~28% earnings CAGR over FY23-25, while RoA/RoE would expand to 2.2%/18.0%. We reiterate our BUY rating with a TP of INR1,450 (premised on 1.7x Sep’24E ABV).

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