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Long-term outlook positive

IndusInd Bank (IIB), a part of the Hinduja Group, provides loans for vehicles, property, etc. in its consumer finance division, while the corporate banking division offers a wide range of products to SMEs and large enterprises.

* For Q1FY22 standalone, NII income reached Rs. 3,564cr (7.7% YoY, 0.8% QoQ) with NIM of 4.06% (-22bps YoY, -7bps QoQ).

* CASA ratio reached 42.0% (vs 41.7% in Q4FY21). Loan book stood at Rs. 210,727cr (-0.8% QoQ), Deposits grew to Rs. 267,233cr (4.3% QoQ).

* GNPA/NNPA climbed to 2.88%/0.84% (vs. 2.67%/0.69% in Q4FY21) respectively.

* The interest spreads are expected to improve over long-term due to higher yields from advances. Also, the bank is well capitalised to handle any stress from loan losses or moderate asset quality deterioration. Hence we retain our rating to BUY with a revised target price of Rs. 1,137 using 1.6x FY23E BVPS.

NIM margins remains stable QoQ

For Q1FY22, Net interest income reached Rs. 3,564cr (7.7% YoY, 0.8% QoQ) with NIM of 4.06% (-22bps YoY, -7bps QoQ). Yield on assets for the quarter was 8.59% (vs 9.38% in Q1FY21), while cost of deposits was 4.97% (vs 5.73% in Q1FY21). Core Fee income improved to Rs. 1,214cr (78.0% YoY). This growth spike resulted from increase in Loan fees (188.9% YoY) and Distribution Fees (78.7% YoY). Cost to income ratio grew 40.5% (vs 39.4% in Q1FY21). PAT surged to Rs. 975cr (111.7% YoY) on account of lower provisioning in the quarter of Rs. 1,844cr (-18.4% YoY).

Higher slippages in small CV, 2W and cards

CASA grew 5.2% QoQ. CASA ratio improved to 42.0% (vs 41.7% in Q4FY21), while Deposits increased to Rs. 267,233cr (4.3% QoQ). Loan book stood at Rs. 210,727cr (- 0.9% QoQ, 11.75% yield) with Corporate lending reaching Rs. 92,407cr (2.8% QoQ, 8.36% yield) and Consumer Finance at Rs. 118,320 (2.4% QoQ, 14.36% yield). Fresh slippages came in at Rs. 2,762cr, as GNPA/NNPA climbed to 2.88%/0.84% (vs. 2.67%/0.69% in Q4FY21) respectively. Bank maintained a relatively stable Provision Coverage Ratio (PCR) of 72%, Total loan related provisions of Rs. 7,595 crs (123.0% of GNPA; 3.6% of total loans). Liquidity Coverage Ratio (LCR) remains healthy at 146%.

Key concall highlights

Restructured advances were 2.7% (vs 2.0% in Q4FY21).The NPA recoveries of Rs.589cr this quarter (includes the sale to ARC of Rs.400cr).  Gross NPA concentration has been high in TW and Small C.V segments.  Capital adequacy remains strong with CARR/CET1 ratio at 17.57%/15.59% (vs. 17.38%/15.55% in Q4FY21).

Outlook & Valuation

We do not expect the current levels of lower credit costs to sustain over the long term, with fresh NPAs primarily from unsecured loans. On the other hand, the interest spreads also are expected to improve over long-term due to higher yields from advances. Overall the bank is well capitalised to handle any stress from loan losses or moderate asset quality deterioration. Hence we retain our rating to BUY with a revised target price of Rs. 1,137 using 1.6x FY23E BVPS.

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