Buy IndusInd Bank for Target Rs. 1,700 - Motilal Oswal Financial Services
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Earnings in line; growth outlook remains healthy
Guides for further moderation in slippage run rate over 2HFY24
* IndusInd Bank (IIB) reported an in-line 2QFY24 performance. PAT was up 22% YoY at INR22b, aided by healthy NII growth (up 18% YoY) and lower provisions (down 15% YoY).
* Loan growth was healthy at 21% YoY to INR3.2t, with healthy traction in both Corporate and Consumer Finance books.
* Fresh slippages rose ~7% QoQ to INR14.7b, driven by a sharp rise in slippages in the corporate book to INR2.1b from INR0.4b in 1QFY24. GNPA/NNPA ratios remained stable at 1.93%/0.57%. The restructured book declined 12bp QoQ to 0.54%.
* We estimate IIB to deliver a ~23% earnings CAGR over FY24-26 and RoA/RoE of 2.0%/16.8% by FY25. We reiterate our BUY rating with a TP of INR1,700.
PPoP in line; NIMs stable at 4.29%
* NII rose 18% YoY to INR50.8b (in line), while ‘other income’ grew 13% YoY, with treasury income of INR1.6b (vs. 0.9b in 1QFY24). Total revenue grew 17% YoY to INR73.6b. NIM remained stable at 4.29%.
* Operating expenses rose 25% YoY to INR34.5b. The C/I ratio increased 102bp QoQ to 46.9% and the bank expects it to moderate in 2H. PPoP grew 10% YoY in 2QFY24 to INR39.1b (in line).
* On the business front, loans grew 5% QoQ (up 21% YoY), led mainly by the Consumer Finance segment (up 6.4% QoQ). In the Consumer business, growth picked up in the Vehicle segment, with disbursements of more than INR128b in 2QFY24. Utility vehicle/microfinance segments clocked healthy growth of 9.3%/7.4% QoQ. Credit card business grew 5.4% QoQ. The bank’s Retail-to-Wholesale mix was stable at 55:45. Deposits grew 14% YoY (up 4% QoQ), with the CASA mix moderating 50bp QoQ to 39.4% and the Retail deposit mix as per LCR increasing to 44%.
* Fresh slippages increased by ~7% QoQ to INR14.7b in 2QFY24 from INR13.8b in 1QFY24. GNPA/NNPA ratios remained stable at 1.93%/0.57%, with healthy recoveries and upgrades during the quarter. PCR improved 70bp QoQ to 71.3%. The bank holds contingent provisions of INR15.2b and INR14b towards standard asset provisions. The restructured book declined to 54bp in 2QFY24 from 66bp in 1QFY24.
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