IGI Logo

Stable performance; positive outlook

IndusInd Bank (IIB), a part of the Hinduja Group, provides loans for vehicles and property in its Consumer Finance division, while the Corporate Banking division offers a wide range of products to SMEs and large enterprises. • Net interest income (NII) rose 4.3% in Q3FY24 owing to the increased loan book. Net interest margin (NIM) remained flat at 4.29% sequentially owing to the revaluation of loans and deposits. • Gross and net non-performing assets (GNPA/NNPA) remained flat sequentially at 1.92%/0.57% in Q3FY24, while fresh slippages increased 20.5% QoQ. • The bank showcased steady operational performance during the quarter and is expected to perform even better in the upcoming period with a focus on digitalisation, branch network expansion, and effective marketing campaigns. Overall asset quality remained stable despite higher slippages owing to bad weather in the southern and northern regions. Hence, we remain positive on the stock and reiterate our BUY rating, with a target price of Rs. 1,791, based on 1.7x FY26E BVPS.

NIM remained flat on account of revaluation of loans and deposits.

In Q3FY24, NII rose 4.3% QoQ to Rs. 5,296cr (+17.8% YoY), while NIM remained stable at 4.29%. Sequentially, deposit costs were up 9bps owing to the final stage of deposit revaluation. On the other hand, the yield on advances increased by 15bps QoQ because of loan repricing and a strong yield contribution from the retail business (+23bps QoQ). Opex grew 6.1% QoQ owing to constant investment in human capital, distribution network and marketing initiatives. Resultantly, cost-to-income ratio rose 50bps QoQ to 47.4%. In addition, net income increased 5.3% QoQ because of low provisioning (-4.1% QoQ) and partly offset by higher tax expense (+6.1% QoQ)

Soft balance sheet growth

In Q3FY24, the company’s loan book grew 3.7% QoQ, driven by robust disbursement from its retail loan book (+4.7% QoQ). Utility vehicle loans showcased a remarkable growth of 11.4% QoQ, while commercial vehicles registered stable growth of 3.2% QoQ, despite lower industry volumes. GNPA/NNPA remained flat at 1.92%/0.57% in Q3FY24 vs. 1.93%/0.57% in Q2FY24.However, fresh slippages increased considerably to Rs. 1,765cr (+20.5% QoQ) due to high slippages in Vehicle finance, caused by adverse weather conditions in some parts of the country. The management has indicated that slippages would get normalised in Q4FY24. The restructured book was down to 0.48% vs 0.54% in Q2FY24 owing to upgrades and recoveries in Vehicle finance. Deposits logged a subdued 2.6% growth QoQ to Rs. 368,793cr, with 0.3% QoQ growth in CASA deposits and 4% QoQ growth in term deposits. However, the capital adequacy ratio (CAR) fell to 17.9% in Q3FY24 vs 18.2% in Q2FY24.

Key concall highlights

• IndusInd Bank opened 97 branches, taking its total branches to 2,728 at endQ3FY24, in line with its target of opening 1,000 branches by FY26.

• The bank expects its cost-to-income ratio to be 45 - 46% by FY25 and stabilise between 41% and 43% thereafter

Outlook and valuation

The company's sustained emphasis on digitalisation, branch network expansion, and effective marketing campaigns is anticipated to significantly enhance its balance sheet and operational performance. Asset quality is expected to improve with a reduction in slippages. Further, the company has successfully delivered its Planning Cycle 6 (FY23- 26) targets and is exhibiting significant ambition to further refine its performance in the upcoming period. Hence, we reiterate our BUY rating on the stock with a rolled over target price of Rs. 1,791, based on 1.7x FY26E BVPS.

For More Geojit Financial Services Ltd Disclaimer https://www.geojit.com/disclaimer 

SEBI Registration Number: INH200000345