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‘Business growth to pick up’

* Indusind Bank (IndusB) reported strong growth in PAT of Rs1,016 cr in Q1FY22, our estimate of Rs944 cr, as contained OPEX, pick-up in core fee offset the impact of increase in provisioning. NII growth reduced to 7.7% YoY (9.4% in Q4FY21) as increase in interest cost (3.2% QoQ) weighed on income. NIM reduced by 7bps QoQ to 4.1% due to increase in interest cost & surplus liquidity. Advances reduced sequentially amidst Covid second wave challenges, meanwhile strong traction continued in deposits (4.3% QoQ) driven by retail segment. As per the mgmt, the bank will deliver planned business growth despite weak business in Q1 as economy is witnessing strong recovery with easing of Covid second wave.

* Gross slippage was reduced to Rs27.6 bn (from Rs38.3 bn in previous quarter), though GNPA rose by 21bps QoQ to 2.88% due to lower R&U sequentially. Slippages from consumer portfolio was Rs23.4 bn (85% of total slippages) mainly came from vehicles finance segment (38% of total slippages) and MFI (24% of slippages). Restructuring book rose to 2.7% (2.0% in Q4FY21) while vehicles finance constituted 55% of total restructuring book as of Q1FY22. Collection efficiency improved in Jun to 96% after witnessing a dip in Apr-May due to Covid second wave.

* Bank strategized to follow conservative provisioning policy and thereby created 100% provisions against MFI NPAs. Total provisions cover rose 3.6% of loans (3.3% in Q4) provides comfort and will immune profitability and BS from Covid led business uncertainty.

* Liability profile has strengthened with higher contribution from retail segment. Reduction in deposits rate and likely pick up in credit growth with economy recovery to boost growth & profitability. High standard assets provisioning (contingent buffer at 1% of loans) provides comfort on assets quality front, however elevated slippages & restructuring from retail portfolio (mainly vehicles finance segment) requires close monitoring. Profitability trend to remain strong driven by high margin, contained cost and pick up in core fee income. We maintain ‘Buy’ rating with target price at Rs 1,175 valuing bank at P/ABV 1.8xFY23E.

Contained OPEX, pick up in fee provide support to profitability

NII grew by 7.7% YoY as compared to 9.4% YoY growth in previous quarter. Interest cost picked up 3.2% QoQ amid strong growth in deposits while interest income grew by modest 2.1% QoQ. NIM declined by 7 bps QoQ to 4.1% due to pick up in interest cost, modest interest income growth and surplus liquidity. Meanwhile, the impact of reduction in deposit interest will reflect in coming quarters. Core fee income picked up significantly (78% YoY) on lower base providing support to total income. OPEX remained contained (-0.9% QoQ) and C/I improved to 40.5% in Q1 from 39.4% in Q1FY21. Provisioning at Rs18.4 bn remained higher than estimation, though IndusB managed to report strong sequential growth in PAT at 9.7%.

Advances growth remains weak; strong pick up in deposits

IndusB reported -1% QoQ decline in advance growth as disbursements across segments impacted by Covid second wave induced localized lockdown. Retail credit de-grew by -2.7% QoQ, while corporate portfolio with 5.5% QoQ reported second consecutive quarter sequential growth. As the corporate underwriting realignment is almost over, we expect pick-up in corporate credit. On retail segment, mgmt stated that disbursements picked up since Jun across most product lines including VF, LAP. Deposits grew by 4.3% QoQ and CASA improved to 42%

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