Buy Indusind Bank Ltd : Business growth improving; outlook on growth/asset quality key monitorables- Emkay Global
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Buy Indusind Bank Ltd For Target Rs.1,375
Business growth improving; outlook on growth/asset quality key monitorables
Business Update – Q2FY22
* IIB reported better-than-expected credit growth of 10% yoy/5% qoq (total loans at Rs2.2tn), indicating underlying strong credit re-acceleration in the retail book. Notably, IIB has been growing its corporate book since Q1 and we believe that the bank is likely to have seen healthy momentum in the corporate book in Q2 as well.
* Deposit growth was strong at 21% yoy/3% qoq, with CASA at a high and healthy level of 42%. Retail deposits and deposits from small business customers grew 48% yoy/6% qoq and stood at 41% of loans (33% in Q2FY21). We believe that better credit growth and thus LDR at 80% should partly improve margins qoq.
* IIB did not provide any fresh updates on asset quality. In a recent interview, management indicated improved collection efficiency in VF; however, MHCV, which includes the Bus segment, still remains weak. IIB reported better asset quality outcomes in MFI in Q1, which we believe should continue but for some additional restructuring during Q2 on guided lines.
* We expect NPA formation to moderate qoq, given lower stress in MFI and the absence of any lumpy corporate stress. That said, IIB plans to make accelerated provisions on Vodafone in Q2, mainly to cover FB exposure (Rs9.5bn), and may reverse the same at an appropriate time, subject to better visibility. This should keep provisions elevated and profits in check in Q2.
* Outlook: We appreciate management’s conservative stance to make accelerated provisions on Vodafone despite a recent positive move from the government. The provisions can be reversed as the group’s growth visibility improves. Currently, we have a Buy rating on the stock with a TP of Rs1,375, given a remarkable improvement in its liability profile after a scare earlier, re-accelerating credit growth, expected improvement in return ratios (RoE ~15-17% over FY23-24E) and reasonable valuations (1.7x Sep’23E ABV).
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