Buy IndusInd Bank Ltd For Target Rs.1,300 - Anand Rathi Share and Stock Brokers
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Credit growth to pick up, earnings outlook bright; retaining a Buy
Immediately after the first Covid wave, Indusind Bank was severely hit on both asset and liability sides. Its turnaround in the last few quarters has been stellar given that one-third of its assets (VF+MFI books) were impacted and the strong run on deposits on its liability side. Stress on its VF & MFI books was much lower than the industry and strong traction was seen in deposits. We expect credit growth and profitability to be strong on account revived demand in MFI and vehicle finance; bright corporate outlook in on the government’s infra push; sturdy balance sheet (72% coverage, Rs30bn provision buffer, 1.2% of loans) and strong liquidity and capitalisation. We retain our positive view with a revised TP of Rs1,300 (earlier 1,200), valuing it at 1.7x P/ABV on its FY24e book.
Credit growth to be strong. On IIB’s good disbursement in vehicle and MFI books in Q1, we expect the traction to continue as both industries are experiencing revived demand. Corporate credit is expected to pick up on the government’s infra push till the 2024 general elections. We expect overall credit growth to continue strong in the medium term.
Strong margins, lower credit cost to drive RoA. In the rising interest-rate context, NIM is expected to hold above 4%. Higher margins and the expected moderation in operating expenses would keep operating profits strong. On the good operating performance, a pick-up in business growth and the benign credit-cost cycle, profitability is expected to be robust. We estimate a ~1.7% RoA each for FY23 and FY24.
Valuation. Our Sep’23 Rs1,300 target stems from a two-stage DDM model. This implies a ~1.7x P/ABV multiple on its FY24e book. Risks: Lumpy slippage in the corporate book; volatility in asset quality from the MFI book
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