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Steady topline but lower profitability: IndusInd Bank reported net interest income growth of 0.6% QoQ and 11.1% YoY to Rs 5,408 crore, driven by improved yields and steady asset growth. However, operating costs rose by 3.1% QoQ and 20.8% YoY, while other operating expenses increased by 20.5% QoQ and 43.4% YoY. As a result, the bank's pre-provision operating profit grew by 2.5% YoY but declined by 3.8% QoQ. Consequently, profit after tax (PAT) grew by 1.3% YoY but fell by 8.4% QoQ to Rs 2,152 crore, mainly due to a 10.5% QoQ and 5.9% YoY increase in provisions costs.

Advances growth in line with industry: The bank continued to growth at a steady pace as it reported advance growth of 1.3% QoQ/15.5% YoY to Rs 3.47 lakhs cr. For the quarter, the growth was led by the corporate segment which increased by 3.4% QoQ/12.8% YoY to Rs 1.57 lakhs cr while consumer banking segment was flat on sequential basis but grew 13.3% YoY to Rs 1.9 lakhs cr. In the vehicle finance, the bank reported healthy growth in the Utility vehicle segment as it increased by 3.8% QoQ/27% YoY. Also, the bank saw increase in secured and unsecured lending such as LAP and personal loan. Going forward, the management remains confident to grow its advances higher than the industry standard.

Term led deposit growth: During the quarter, deposits increased by 3.6% QoQ/14.8% YoY to Rs 3.98 lakhs cr. The growth in deposits was mainly led by the term deposits which grew by 5.6% QoQ/21% YoY to Rs 2.52 lakhs cr. CASA deposits growth was flat on sequential basis while growing 5.6% YoY. During the quarter, CASA ratio declined by 121bps QoQ/322bps YoY to 36.7%. The management expects CASA deposits to take pace during the fiscal year as the company takes initiatives to ramp up CASA deposits.

Marginal decline in margins: Net interest margin (NIMs) during the quarter declined marginally by 1bps QoQ/4bps YoY to 4.25% as the bank saw healthy growth in its yields on assets with a growth of 2bps QoQ/27bps YoY to 9.87%, however, cost of funds also increased proportionally thus nullifying the yield increase. Cost of funds was reported at 5.62%, increasing 3bps QoQ/31bps YoY. Both Consumer and corporate banking segment saw decline in yields on sequential basis by 10bps/5bps,while on annualized basis consumer segment saw impressive 59 bps increase. The bank expects that the future improvement in NIMs shall be supported by the improvement in yields as they improve book mix to high yielding assets.

Valuation and outlook: IndusInd Bank experienced steady top-line growth, driven by higher yields and asset expansion. The bank also achieved robust growth in its loan portfolio, primarily supported by the retail segment. While margins saw slight moderation, they are expected to stabilize as the cost of funds normalizes. Financially, we expect NII/PPOP/PAT growth of 19%/21%/22% CAGR over FY24-26E. We maintain Buy rating on the bank with a target price of Rs 1,757 valuing the bank at 1.7x of its FY26E adj. BV.

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