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Result Highlights

Asset quality: Gross slippages amounted to Rs 13.76bn (annualized slippage ratio of 1.8%) and recoveries and upgrades amounted to Rs 5.41bn

* Margin picture: NIM at 4.29% inched up 1 bps QoQ sustained by upward repricing of assets and active management of liabilities

* Asset growth: Advances grew 3.9%/21.5% QoQ/YoY driven sequentially by Small corporates and select retail segments

* Opex control: Total opex rose 5.9%/22% QoQ/YoY, employee expenses rose 3.2%/30.7% QoQ/YoY and other expenses rose 6.9%/19.2% QoQ/YoY

* Fee income: Core fee income rose 1.5%/18.6% QoQ/YoY driven sequentially by Trade and remittance and General Banking Fees

Our view – Cyclical improvement in conditions causes cyclical rally

Management was not bullish with regard to NIM guidance given factors at play that cancel each other out: Management guided that net interest margin would be in the 4.2- 4.3% range. They stated that they are not particularly aggressive with NIM guidance since the corporate margin would be under pressure due to downward repricing of the MCLR book.

There was a sequential decline in slippages and credit cost is approaching their FY24 guidance: Overall gross slippages for the quarter amounted to Rs 13.76bn compared with Rs 16.03bn in 4Q. The annualised credit cost of 132 bps is moving towards the full year guidance of 110-130 bps for FY24.

Management stated that microfinance business was sluggish due to transient factors: Microfinance book de-grew 1% QoQ and grew 9% YoY. There was a slowdown in 1Q due to the implementation of new technology. Management expects microfinance disbursement to improve as the year progresses.

Management guided for an improvementin cost to income ratio next year in FY25: The bank would end the year with a cost to income ratio of 45%. Next year, the cost to income ratio is expected to be in range of 41-43%.

We maintain ‘Buy’ rating on IIB with a revised price target of Rs 1705: We value the bank at 1.9x FY25 P/BV for an FY24E/25E/26E RoE profile of 14.5%/15.4%/15.8%.

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