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IndusInd Bank (IIB) reported healthy set of numbers with stable NIMs, robust loan growth and strong RoAs though sequentially higher gross slippages and continued run-down in SA balances were key irritants. Bank reported its Q4FY23
PAT at Rs20.4bn, up 50% YoY (4% QoQ), on the back of 13% YoY (2% QoQ) growth in core operating earnings and moderation in credit costs. Annualised RoA have been strong at 1.9% for Q4FY23 and 1.8% for FY23. Despite strong financials, growth and capital levels, the in-expensive valuations of IIB (~1.25x FY25E P/ABV), in-part reflect, behind-the-curve positioning of the bank in NIMs progression (stable vs rising at trajectory at peers), asset quality outcomes (volatile performance vs steady improvement at peers), slightly weaker execution and the recent limited term renewal for the incumbent MD & CEO. While we acknowledge the above, we are confident that the bank should see stable NIMs trajectory (vs peaking for peers) and improving asset quality. IIB has also given a fairly wide range of guidance under PC-6 and has shown healthy pick-up in execution, which should also address investors’ concerns. With clarity on the term of incumbent MD & CEO, consistent delivery on financial parameters should
drive the re-rating for the stock.

We believe the bank is well placed on growth given the likely revival in its core vehicle and MFI businesses, and rising traction in new businesses. With improving loan mix, we are building in stable NIMs for FY23-25E (vs peaking for the system). With significant reduction in restructured book and improving outlook in MFI and CV businesses, the bank should see sharp improvement in gross slippages and credit costs. We see improved visibility of RoA rising to 1.8- 1.9% and RoE to >15% for FY24E-FY25E. We value the stock at ~1.65x FY25 ABV (~1.9x FY24) and arrive at our target price of Rs1,450. Maintain BUY. Key risks to  our thesis: Sharp rise in delinquencies and lower than expected ramp-up in deposits constraining loan growth.

* Strong growth led by uptick in retail; Guidance for ~18-23% CAGR under PC-6: Loan growth, as communicated earlier, was healthy at ~6% QoQ and ~21% YoY, driven by ~7% QoQ / ~20% YoY rise in Retail and supported by mid & small
corporates (up 7% QoQ). Within retail, the vehicle book saw 5% QoQ growth while MFI jumped 9% QoQ and other retail businesses (barring LAP) also showed strong growth. IIB aims at a sturdy 18-23% CAGR in loans under PC-6. We are
conservatively building-in a loan CAGR of 16-17% for FY24E-FY25E.

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