Buy IndusInd Bank Ltd For Target Rs.1,200 by Motilal Oswal Financial Services Ltd
In-line quarter; near-term challenges persist
Margin contracts further by 15bp QoQ
* IndusInd Bank (IIB)’s PAT declined 39% YoY/rose 5% QoQ to ~INR14b (in line), as NII and NIM were broadly in line, while provisions continued to remain high.
* NII declined 2.2% QoQ to INR52.3b (in line), while NIM contracted by another 15bp QoQ to 3.93% (in line).
* Loan books grew 12% YoY (2.7% QoQ), led by corporate and commercial books, while the VF business has started showing some improvement with robust disbursements. The MFI book dipped 0.5% QoQ. Deposits grew 11% YoY (down 0.7% QoQ), amid the outflow of CA deposits.
* Fresh slippages stood elevated, up 22% QoQ to INR22b, primarily due to a rise in slippages in the consumer finance book to INR19.2b. GNPA/NNPA ratios increased 14bp/4bp QoQ to 2.25%/0.68%. IIB utilized INR2b of the contingent buffer.
* We cut our earnings estimates by 2.8%/1.7% for FY25/26, leading to an RoA/RoE of 1.4%/12% by FY26. Reiterate BUY with a TP of INR1,200 (premised on 1.2x Sep’26E ABV). The RBI’s approval for a fresh term for the MD and CEO remains a key near-term monitorable.
Fresh slippages rise; VF growth recovers, while MFI remains subdued
* IIB reported a 3QFY25 PAT of ~INR14b as NII and NIM stood broadly in line, while provisions continue to remain higher despite the bank utilizing the contingency provision of INR2b. Its 9MFY25 PAT stood at INR49b (down 26% YoY), while 4QFY25 PAT is expected to be at INR14.8b (down 36% YoY).
* NII declined 1% YoY/2% QoQ to INR52.3b (in-line). Other income declined 1.7% YoY (in line) amid the weak core fee income. Total revenue thus declined 1.4% YoY to INR75.8b. NIM contracted sharply by 15bp QoQ to 3.93% amid slower growth in high-yielding business.
* Opex grew 9% YoY to INR39.8b (in line). C/I ratio increased by 31bp QoQ to 52.5%. PPoP stood flat QoQ at ~INR36b (in line).
* On the business front, loans grew 12% YoY (2.7% QoQ) led by corporate and commercial books, while the VF business has started showing some improvement with healthy disbursements. In the consumer business, MFI books decreased by 0.5% QoQ, while cards remained flat.
* Deposits grew 11% YoY (down 0.7% QoQ), led by 0.8% QoQ growth in term deposits. CASA ratio moderated 99bp QoQ to 34.9%. The retail deposit mix as per LCR improved to 46%. The CD ratio stood at 89.6%, up 300bp QoQ.
* Fresh slippages increased 22% QoQ to INR22b, amid higher slippages in the consumer finance book at INR 19.2b. GNPA/NNPA ratios increased 14bp/ 4bp QoQ to 2.25%/0.68%. In 3Q, the bank utilized INR2b of contingent provisions, of which INR1.6b was towards MFI and INR0.4b for the corporate portfolio. Restructured book declined 11bp QoQ to 0.18%.
Highlights from the management commentary
* The bank is reducing the share of MFI business and wants to bring this down to 8-10%.
* About 13% of the MFI business pertains to Karnataka, and the bank has reduced this book by 4% QoQ. Early indicators suggest that CE will be down by 1%.
* INR1.6b of the contingent buffer was used against the MFI and INR400m towards the corporate portfolio.
* VF business in good times generates 110bp of credit costs, and in bad times generates 130-140bp of credit costs.
Valuation and view
IIB reported an in-line quarter with overall weakness continuing as provisions continue to remain elevated while business growth moderated sharply. Deposits growth was subdued as the bank moved away from the non-friendly LCR deposits. On the advances side, the growth in MFI continues to remain weak, while VF business has seen some pickup after a few quarters of muted growth. Yields continued to remain weak as the bank slowed down its growth in the high-yielding business. Loan growth estimates remain on the lower side at 12-13% for FY26-27. The MF and Card businesses may continue to report stress in the near term, keeping credit costs elevated. We cut our earnings estimates by 2.8%/1.7% for FY25/26, leading to an RoA/RoE of 1.4%/12% by FY26. Reiterate BUY with a TP of INR1,200 (premised on 1.2x Sep’26E ABV). The RBI’s approval for a fresh term for the MD and CEO remains a key near-term monitorable.
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
