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In-line quarter but with a few niggles

Largely as expected; consistency, key to re-rating

IndusInd Bank (IIB IN) delivered Q3FY24 PAT of ~INR 23bn – up >17% YoY (in-line with estimates). This was led by 18% growth in NII and lower credit cost (down 12% YoY; IIB utilized INR 2.2bn of contingent buffer). Qualitatively, Q3 was a mixed quarter – While on one hand, we saw sustained loan growth, steady retail liability traction and better NIM, on the other hand, higher slippages and further utilization of buffer (in contrast with earlier guidance) were dampeners. While IIB is confident of steady improvement in these metrics, delivery will be the key to building investor confidence as these variances in delivery do impact the narrative. IIB is in sweet spot (of cycle), wherein its relative performance could be a notch better than others. We believe progress on next-cycle deliverables and consistency are the key to a re-rating.

Core as expected, favorably placed on cycle

Business momentum was steady, with loan growth of 20% YoY/3.7% QoQ, supported by growth for consumer (>4% QoQ) and small corporate segments(>5% QoQ). NIMs (reported) were 4.29% (flat QoQ) – versus a dip for others, validating our earlier thesis that unlike peers, which may face NIM disappointments, IIB may be better placed, thus closing the divergence with peers. IIB has already guided for 4.2-4.3% NIM in Planning Cycle six. Henceforth, watch for funding cost, which may shape up near-term NIM outlook.

Variability on asset quality, a niggling issue

Slippages were higher yet again at INR 17.7bn (2.5%), led by a rise in both corporate segment (contributed largely by one account) and consumer segment (this was surprising). With this, IIB is set to miss its earlier slippage guidance and such variances generally reflect on investor confidence. Add to that, IIB further utilized contingency provisions (against its earlier guidance), which curtailed credit cost. With lower 30-90dpd book in MFI, lower restructured book, low SMA book, asset quality trends may normalize but consistency remains missing link.

Valuations: Recommend Buy; TP raised to INR 1,890

IIB seems to have passed the consolidation phase. In addition to structural changes, it is poised to leverage cyclical tailwinds. The bank has built contingency buffer in addition to coverage of +70%, which may rein in credit cost, but variability on these is monitorable. We believe that scaling growth, improvement in liability, consistency and better return ratios may help a re-rating. We introduce FY26E and roll to September 2025E, leading to raised TP of INR1,890 (from INR 1,738).

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