IGI Logo

Steady operating performance; marginal increase in NPA ratio

Result and Price Analysis

Indusind bank has reported a decent set of numbers with the positives being 1) 67% yoy jump in reported profit led by NIMs expansion (4.21%) and lower provisioning expenses (down 32% yoy), 2) Strong business growth (credit: 17.7% yoy, Deposits: 13.3% yoy), 3) Stable PCR level (PCR: 72% & Non-specific: 1.6% of book), 4) Reduction in restructuring book to 2.1% v/s 2.6% in the previous quarter, 5) Ample capital cushion (CAR: 18.14%) and 6) better CASA deposit mobilization. Nevertheless, the negatives are 1) Slight spike in GNPA ratio (2.35% v/s 2.27% in previous quarter) driven by higher slippages, and 2) Vehicle loans (especially CV and CE) witnessing higher NPA formation. We believe, the bank has made adequate provisioning against the potential stress and expect the credit cost normalization to begin. We have a positive outlook on the bank with a BUY rating.

Slight spike in NPA; Provision down sequentially:

The bank’s reported gross slippages inched up marginally to ?22.5bn against ?21bn the in previous quarter. Retail slippages contributed around 73% (?16.5bn) of total fresh GNPA additions. The slippages from restructuring book was ?9.2bn (41% of the total slippages). Total GNPA reduction stood at ?18.3bn v/s ?23.5bn in 4QFY22 led by significant write-offs (~?12bn). Higher slippages and slower reduction (upgrade and recovery) led to spike in GNPA ratio by 8bps to 2.35%. In absolute term GNPA is up 7% sequentially. GNPA/NNPA/PCR stood at 2.35%/0.67%/72% v/s 2.27%/0.64%/72% in the previous quarter. In retail banking, 2-wheeler segment and CV segment have higher GNPA ratio of 7.9% and 2.0% respectively; Moreover, NPA ratio spiked in CV and CE segments. BBG/LAP segment has GNPA of 3.5%. Stress in MFI has been easing and GNPA ratio stood at 2.5%. The standard restructured assets went down and stood ~?52bn (2.1% of book) v/s ?62bn (2.6%) in 4QFY22. Additionally, ?9.2bn of restructuring has slipped into NPA this quarter. The bank’s provision expenses down sequentially to ?12.5bn v/s ?14.6bn in the previous quarter. The total provisions (including contingent) stand at 141% of GNPLs and contingent provision (excluding PCR) stood 1.65% of loans. The bank’s coverage on MFI NPAs is at 95%

FY23E credit growth guidance of 18% - 20% seems achievable:

The bank’s net advances stood at ~?2.5tn; grew 17.7% yoy and 3.7% sequentially. Corporate banking (46% of loan book) grew by 4.5% qoq and retail (54% of book) growth at 3 qoq. Vehicle loan (26% of loan book) grew by 4.3% qoq and Micro loan (12% of loan book) witnessed de-growth of 4% sequentially. Vehicle financing witnessed muted disbursement (?10.1bn; 1% qoq). Management has guided for credit growth of 18-20% in FY23. The bank’s deposit stood at ~?3tn and has seeing a healthy growth of 13.3% yoy and 3.2% qoq; CASA ratio up by 40bps to 43.1%. The bank is holding ample liquidity (LCR: 124%).

Healthy operating quarter:

The YoA sequentially up (11.39%) and COF (4.14% v/s 4.08% in previous quarter) have resulted in spike in interest spreads. Moreover, NIMs are marginally up at 4.21% sequentially. NII stood ?41.2bn; grew by 16% yoy and 3.5% qoq. Other income grew by 8.4% yoy and 145% qoq; despite de-growth in treasury income. PPoP (?34.3bn) up by 9.6% sequentially on the back of higher NII. Sequentially down provisioning expenses (?12.5bn v/s ?14.6bn in 4QFY22) have resulted in 67% yoy and 16% sequential jump in profit at ?16.3bn. The bank’s ROA and ROE stood at 1.73% and 13.44% respectively. Management FY23E ROA guidance of 1.5% - 1.8% seems achievable.

Outlook & Valuation

Core operating performance of Indusind Bank remains healthy. A higher PCR is likely to safeguard the bank from credit disruption from various restructuring schemes. We retain our BUY rating with a price target of ?1,065 (based on 1.3x FY24E Adj. BVPS of ?819).

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at www.lkpsec.com/#foo

SEBI Registration number is INM000002483

Above views are of the author and not of the website kindly read disclaimer