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Buy IndusInd Bank Ltd For Target Rs. 1408

Credit growth to be strong, earnings outlook robust; Buy

Indusind Bank’s Q3 FY23 profitability improved, with a 1.86% RoA (up 8bps q/q) and stable asset quality. Key positives were 1) strong disbursements in the VF book, 2) strong retail deposit growth, 3) sturdy balance sheet with 70% coverage and a Rs21.9bn provision buffer (0.8% of loans) and 4) strong liquidity and capitalisation. With credit growth expected to be strong and moderating credit costs, earnings are expected to be robust. We maintain our positive view on the bank with a TP of Rs1,408, valuing it at 1.6x P/ABV on its FY25e book.

Asset quality stable. GNPA declined a slight 5bps sequentially to 2.1%, driven by lower slippages and higher write-offs. Slippages were Rs14.6bn (2.4% of loans), of which Rs13.4bn stemmed from the retail book. The standard restructured book was Rs34bn (down 12% q/q). With most of the stress already delinquent/restructured and collections reaching pre-Covid levels, slippages ahead are expected to be modest.

Credit growth to be strong. As the economic environment improves, strong growth is expected from the bank’s MFI and vehicle-finance books in the medium term, with overall credit growth expected to come in high teens.

Stable margins, lower credit cost to drive RoA. Strong credit growth in a rising interest-rate scenario would keep margins near current levels. On the strong margins, moderation in operating expenses and the benign credit-cost cycle, profitability is expected to be good.

Valuation. Our Jan’24 Rs1,408 target stems from a two-stage DDM model. This implies a ~1.6x P/ABV multiple on its FY25e book. Risks: Lumpy slippage in the corporate book; volatility in asset quality from the MFI book

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