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IndusInd Bank (IIB), a part of the Hinduja Group, provides loans for vehicles and property in its consumer finance division, while the corporate banking division offers a wide range of products to SMEs and large enterprises. • Net interest income (NII) grew 4.2% QoQ to Rs. 4,867cr (18.0% YoY), driven by a rise in yield on advances at 12.2% (+20 bps QoQ), despite an increase in the cost of deposits at 6.1% (+31bps QoQ). • Gross and net non-performing assets (GNPA/ NNPA) improved sequentially to 1.94%/0.58% in Q1FY24. Gross slippage declined to Rs. 1,376cr (-14.2% QoQ). • Healthy assets, improved loan growth, strategic new expansions and controlled non-performing assets (NPA) are expected to support the company’s future earnings potential. Although the cost-to-income ratio remains elevated, management expects it to soften in the future. Hence, we remain positive on the stock and reiterate our BUY rating, with a revised target price of Rs. 1,609, based on 1.75x FY25E BVPS.

NIM margin remained flat on QoQ

In Q1FY24, net interest income rose 4.2% QoQ to Rs. 4,867cr (18.0% YoY), due to repricing of assets and better control on liabilities. However, net interest margin (NIM) remained flat at 4.29% vs. 4.28% in Q4FY23. Cost of deposits ramped up due to repricing of deposits at maturity, but IndusInd Bank expects to cut down cost of deposits by 10-15bps by FY24end. Pre-provision operating profit (PPOP) displayed muted growth of 2.1% QoQ to Rs. 3,830cr. Cost-to-income ratio increased to 45.9% (+93bps QoQ), due to elevated employee cost with an addition of new employees, wage hikes, investment in distribution channel and digitalisation expenses. IndusInd continued to minimize provisions in to Rs. 992cr (-3.7% QoQ), driven by improved asset quality and reduced slippages. Adjusted profit after tax uplifted to Rs. 2,124cr (+4.1% QoQ).

Stable asset quality maintained across all verticals

In Q1FY24, IndusInd’s loan book grew to Rs. 3,01,317cr (+3.9% QoQ), driven by strong contributions from commercial vehicle loans (+4.1% QoQ), car loans (+5.1% QoQ) and large corporates (+3.7% QoQ). GNPA/ NNPA continually improved to 1.94%/0.58% in Q1FY24 vs 1.98%/0.59% in Q4FY23, while maintaining a stable provision coverage ratio of 71%. Further, gross slippage dipped to Rs. 1,376cr (-14.2% QoQ), while gross slippage in the vehicle finance segment increased to 0.77% (+16bps QoQ) as Q4FY23 emerged as a seasonally weak quarter. Consolidated deposits grew by 3.2% QoQ to Rs. 3,47,047cr, driven by a 6% QoQ increase in saving account deposits in Q1FY24 and granular acquisition with retail deposit (+5% QoQ). As a result, the liquidity coverage ratio (LCR) expanded to 132% (+19% QoQ). Capital-to-risk weighted assets ratio (CRAR) reached 18.4% in Q1FY24 vs 17.86% in Q4FY23.

Key highlights

• IIB aims to expand its branch network by adding 250-300 branches by the end of FY24. As of June 2023, the bank has 2,606 branches.

• Management expects the cost-to-income ratio to remain stable at 45% during FY24-end and to decline to 41%-43% by FY25.

Outlook & Valuation

IIB has a solid balance sheet with improved loan growth and healthier asset quality across all verticals. IIB’s continuous development of digitalisation, better CASA mix, and new acquisitions/expansions should continue to support its earnings potential in the long run. Hence, we reiterate our BUY rating on the stock with a revised target price of Rs. 1,609, based on 1.75x FY25E BVPS.

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