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In-line quarter

IndusInd Bank (IIB) reported a steady quarter with core-PPOP growth at +20% YoY, healthy loan and deposit growth momentum (+19% and +14% YoY resp.) and steady asset quality (GNPL/NNPL at 2.06%/0.62%). Loan growth is picking up with improving loan growth momentum across segments. We expect IIB to clock 20% CAGR in loans over FY22-25E in line with management guidance. IIB’s cost of deposits has inched up 37bps QoQ as the bank is increasingly focused on retail and granular liabilities. However, we expect impact on NIMs to be minimal driven by pick up in high yielding segments. While slippages has moderated to 2.6% (annualised) vs 2.9% QoQ, a further reduction in the slippages is desirable. IIB utilised its excess provisions during 3Q (INR 4.6bn) and excess provision buffer now stands at 0.8% of loans. We expect avg. credit costs of 150bps over FY23-25E for IIB. Management indicated that exposure to stressed telco is limited to INR 17.3 bn (incl INR 10bn fund based). We believe IndusInd is on track to deliver ROA/RoE of 1.9%/16.9% in FY25E. IIB trades at undemanding valuations of 1.3x FY25E BVPS and we expect stock to rerate upwards aided by steady delivery on growth and return metrics. We value the bank at 1.6x FY25E BVPS to arrive at a target price of INR 1,470. Maintain BUY. Clarity on the extension of CEO tenure will be a key monitorable.

Growth picking up; robust core-operating performance: Loan book witnessed a strong growth of +4.9% QoQ/ +19.3% YoY with corporate book growing by +4.3% QoQ/ +20.4% YoY and retail by +5.3% QoQ/+18.4% YoY. We expect loan growth momentum to sustain driven by broad based growth across segments and build in loan growth of 20% (CAGR) over FY22-25E in line with management commentary. Deposits witnessed a healthy traction growing at +14.3% YoY/ +3.1% QoQ. CASA stood at 41.9% (-40bps QoQ) while retail deposits grew +6% QoQ/ +21% YoY and now stand at 42% of overall deposits. Margins were steady at 4.27% (+3bps QoQ) supported by repricing of assets in tandem with liabilities. Core PPOP growth was strong at +4% QoQ, +20% YoY aided by robust NII growth of +4.5% QoQ,+18.5% YoY and strong core fee income growth (+4% QoQ, +28% YoY)

* Asset quality in fine fettle: GNPLs/NNPLs/restructuring were reported at 2.06%/0.62%/1.25%; -6bps/+1bps/-24bps QoQ. In 3Q23, slippages moderated to INR 14.7bn (2.6% annualised vs 2.9% in 2Q23); though further reduction is desirable. Slippages were a tad higher QoQ in vehicle and MFI segments. While in vehicle segment the increase was driven by region specific issues in Orissa (which is now resolved), MFI segment was impacted due to Eastern states wherein disbursements have now been slowed. IIB holds excess provision buffer of 0.8% of loans which along with its PCR of 71% should keep credit costs under control (JMFe credit costs of 150bps for FY23-25E)

* Valuation and view: We believe IndusInd is on track to deliver ROA/RoE of 1.9%/16.9% in FY25E. IIB trades at undemanding valuations of 1.3x FY25E BVPS and we expect stock to rerate upwards aided by steady delivery on growth and return metrics. We value the bank at 1.6x FY25E BVPS to arrive at a target price of INR 1,470. Maintain BUY.

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