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Steady performance, business outlook improving…

About the stock: IndusInd Bank is a Hinduja group promoted newer age private sector bank and is the fifth largest private bank in India.

* Vehicle finance forms around 30% of overall loans

* Strong pan-India presence with 5221 branches as on June 2021

Q1FY22 Results: IndusInd Bank reported operationally in line results.

* GNPA up 21 bps QoQ to 2.88%. Restructured book at 2.7%

* Total loan related provisions at 3.6% of loans

* Loan growth at 6.4% YoY while deposits were up 27% YoY

* NII up 7.7% YoY, NIMs down 7 bps QoQ to 4.06%, PAT at | 975 crore

What should investors do?

IndusInd Bank’s share price has given flattish returns in the past five years but in the past year the stock has gained ~2x. We believe the bank will show improved business growth with corporate book adding to the momentum along with a pick-up in vehicle financing.

Target Price and Valuation:

We value the bank at ~1.7x FY23E ABV with a revised target price of | 1150 per share (earlier | 1100).

* We retain our BUY rating on the stock

Key triggers for future price performance:

* Focus to pedal growth with corporate re-alignment over

* Healthy capitalisation (CRAR at 17.57%) post warrant conversion

* Maintain guidance on NIMs and business traction is positive

* Return ratios set to improve with RoA/RoE reaching 1.4%, 11.3%, respectively, by FY23E.

Alternate Stock Idea: Besides IndusInd, in our coverage we also like Axis Bank.

* Strong liability profile with healthy capitalisation makes the bank well placed to accrue earnings growth momentum. Healthy provision cover provides comfort on smoother earnings trajectory

* BUY with target price of | 900

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