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IndusInd's 1QFY25 profits at INR 21.7bn (+2% YoY, -8%% QoQ) missed our estimates (of INR 22.7bn) led by a miss on PPOP of INR39.5bn (+3% YoY, est. of INR41.4bn), due to lower noninterest income. Growth trends were a tad soft with loans growing +16% YoY (+1.3% QoQ) and deposits growing +15% YoY (+3.6% QoQ). Retail segments were relatively muted on a sequential basis (esp. microfinance, vehicle loans) given on-ground issues w.r.t to elections, heat-wave and also seasonality. Corporate loans grew +13% YoY (+3.4% QoQ). NIMs held up reasonably well at 4.25% (vs 4.26% in 4Q24) and continued to be around management's long-term band, which reflects adroit NIM management. Gross slippages at 1.89% were relatively better than street expectations with credit costs at 129bps (vs 120bps QoQ), which should come as a sigh of relief given worries around microfinance portfolio of the bank. Management retained its guidance of credit costs at ~110-130bps and expects growth to rebound in rest of the quarters. We believe IndusInd has corrected sharply over the past few months as concerns around microfinance (and some other retail segments) have increased though actual outcome has been within acceptable levels. We build slight moderation in growth vs prior estimates (+17% CAGR in loans over FY24- 26e) with credit costs at 128bps (avg. FY25e/FY26e). Current valuations at 1.3x FY26e BVPS are undemanding and uptick in growth should see the stock bounce. Maintain BUY with an unchanged target price of INR 1900.

* Growth trends soft; uptick to follow: In 1Q25, growth in net advances (+16% YoY, +1.3% QoQ) was soft as retail advnaces growth (-0.3% QoQ, +18% YoY) was muted sequentially (esp microfinance: -6% QoQ, credit cards: +0.5% QoQ, vehicle finance: +1.6% QoQ) due to elections, heat wave and seasonality. However, robust SME loan growth (+6.2% QoQ, +16% YoY) supported book growth. We expect loan growth pick-up in coming quarters of FY25 (mgmt. guided for FY25 full year growth of 18-23%). Mild deposit growth of 3.6% QoQ (+15% YoY) was supported by TD (+6% QoQ, +21% YoY) amidst subdued CASA growth (+0.3% QoQ, +6% YoY), resulting in CASA ratio declining to 36.7% (-121bps QoQ). Overall strategy of the bank remains to scale up retail assets at a faster pace while tilting the balance in favour of secured products

* Asset quality outcomes within comfortable levels: Despite overarching concerns on credit quality, IndusInd bank reported only marginal increase in GNPA/NNPA (2.02%/0.6%, +10bps/+3bps QoQ) with stable PCR at 70.6% (flat QoQ). Gross slippages stood at 1.89% (vs 1.80% QoQ) and credit cost remained within a comfortable range (at 129bps vs 120bps QoQ). Restructured book declined to 0.34% of loans (vs 0.40% QoQ). Mgmt. highlighted increasing slippages in microfinance book and some stress building up in its credit card segment (PAR 30 at 7%) but remained confident that its impact on RoAs is well under control. We build in avg. credit costs of 1.28% over FY25-26E

* Valuations undemanding; maintain BUY: Despite increasing CoF and tight liquidity conditions, IIB has managed to adroitly protect its margins and profitability on the back of its diversification and retailisation efforts. While the stock has corrected sharply over the past few months over concerns on asset quality, the outcomes have been within acceptable range. Current valuations of 1.3x FY26e BVPS are undemanding in our view, and pickup in growth should see the stock bounce. Maintain BUY with an unchanged TP of INR 1900, valuing it at 1.8x FY26E BVPS.

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