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Result and Price Analysis

IndusInd Bank has reported a strong set of numbers and the positives are 1) 58% YoY jump in Reported profit, led by NIMs expansion (4.24%) and lower provisioning expenses (down 33% YoY), 2) Strong business growth (credit: 17.8% YoY, Deposits: 14.7% YoY), 3) Stable PCR level (PCR: 72% & Non-specific: 1.5% of book), 4) Reduction in restructuring book to 1.5% v/s 2.1% in the previous quarter, 5) Ample capital cushion (CAR: 18.01%), 6) Improvement in GNPA ratio (2.11% v/s 2.35% in previous quarter) driven by lower slippages, and 7) GNPA formation muted across segments. Nevertheless, one negative is lackluster CASA deposit mobilization. We believe, the bank has made adequate provisioning against the potential stress and expect further credit cost normalization. Moreover, a healthy CDR (82%) gives further room for credit growth. Thus we have a positive outlook on the bank with BUY rating.

NPA improvement; Provision down sequentially on the back of higher contingent buffer: The bank’s reported gross slippages inched down significantly to 15.7bn against 22.5bn the in previous quarter. Retail slippages contributed around 89% (14bn) of total fresh GNPA additions. The slippages from restructuring book was 5.8bn (37% of the total slippages). Total GNPA reduction stood at 19.4bn v/s 18.3bn in 1QFY23 led by significant write-offs (~12bn). A lower slippages, moreover, faster reduction (upgrade and recovery) led to decrease in GNPA ratio by 24bps to 2.11%. In absolute term GNPA down 6% sequentially. GNPA/NNPA/PCR stood at 2.11%/0.61%/72% v/s 2.35%/0.67%/72% in the previous quarter. In absolute term the GNPA decreased by 7% sequentially. In retail banking, 2-wheeler segment and CV segment have higher GNPA ratio of 8% and 2.0% respectively; Moreover, the bank has witnessed NPA moderation across segments. The standard restructured assets went down and stood -39bn (1.5% of book) v/s 52bn (2.1%) in 1QFY23. Additionally, 5.8bn of restructuring has slipped into NPA this quarter. The bank’s provision expenses down sequentially to 11.4bn v/s 12.5bn in the previous quarter. The total provisions (including contingent) stand at 140% of GNPLs and contingent provision (excluding PCR) stood 1.46% of loans. The bank’s coverage on MFI NPAs is at 99%.

FY23E credit growth guidance of 18% - 20% seems achievable: The bank’s net advances stood at ~?2.6tn; grew 17.8% YOY and 5% sequentially. Corporate banking (47% of loan book) grew by 6.4% QoQ and retail (53% of book) growth at 3.6% QoQ. Vehicle loan (26% of loan book) grew by 4% QoQ and Micro loan (11% of loan book) witnessed marginal growth of 0.7% sequentially. Vehicle financing witnessed strong disbursement (?10.6bn; 6% QoQ). Management guidance for credit growth of 18-20% in FY23 stays intact. The bank’s deposit stood at ~?3.2tn and seen a healthy growth of 14.7% YOY and 4.4% QOQ; CASA ratio down by 80bps to 42.3%. The bank is holding ample liquidity (LCR: 125%). The CRAR stood at 18.01% vs. 18.14% in 1QFY23 with CET 1 of 15.97%. RWA to assets declined to 73% v/s 74% in the last quarter.

Healthy operating quarter: The YoA sequentially up (11.51%) and COF (4.41% v/s 4.14% in previous quarter) have resulted in spike in interest spread. Moreover, NIMs marginally up at 4.24% sequentially. NII stood ?43bn; grew by 18% YoY and 4% QoQ. Other income grew by 9% YoY and 4% QoQ; despite sequential de-growth in banking fee income. PPoP (?35.2bn) up by 2.6% sequentially on the back of higher NII. Furthermore, sequentially down provisioning expenses (?11.4bn v/s ?12.5bn in 1QFY23) have resulted in 58% YoY and 10% sequential jump in profit at ?17.9bn. The bank’s ROA and ROE stood at 1.8% and 14.5% respectively. Management FY23E ROA guidance is inline.

Outlook & Valuation

Core operating performance of IndusInd Bank remains healthy. A higher contingent buffer is likely to safeguard the bank from credit disruption from various restructure schemes. Thus we retain our rating to BUY with price target of ?1474 (based on 1.8x FY24E Adj. BVPS of ?819).

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