Buy Indusind Bank; target of Rs 2000: Motilal Oswal

Motilal Oswal's research report on Indusind Bank

IndusInd Bank's (IIB) 2QFY18 PAT grew 25% YoY (in-line) to INR8.8b. Strong loan growth of 24% YoY (+26% YoY in corporate loans) and a steady NIM of 4% helped keep NII growth steady at 25% YoY.  Robust NII, coupled with steady fee income growth of 22% YoY, enabled the bank to deliver impressive core PPoP growth of 28% YoY. Opex continues to trail total income growth, as IIB sees improving productivity at its branches. Both corporate (+26% YoY) and consumer (+22% YoY) loans exhibited healthy growth. Vehicle loan growth recovered to 17% YoY, and was well supported by ~40% YoY growth in retail non-vehicle loans.  GNPA/NNPAs increased 6% sequentially; however NPA ratios remained stable. Fresh slippages declined to INR4.98b (1.7% annualized, INR6.08b in 1QFY18), led by relatively high slippages in the corporate segment. The bank indicated that the impact of demonetization and NCLT referrals has resulted in relatively high slippages over the past couple of quarters. Restructured book declined to 16bp of loans (INR1.94b), while O/s SR stood at INR4.07b. IIB mentioned that it has provided INR360m toward six accounts that appear on the second list from the RBI, and now carries ~65% provision on these accounts. Other highlights: (1) CASA ratio improved sharply to 42.3% (ahead of 40% target), led by 95% YoY growth in SA deposits. (2) IIB has total exposure of ~INR3.85b toward six accounts that appear on the RBI's second list. (3) IIB expects INR1.5/share impact on EPS from fee income recognition changes under Ind-AS.

Outlook

IIB's key focus is to scale up on its retail operations, led by a higher share of non-vehicle retail loans by FY20. The bank is targeting 25-30% loan growth, driven by continued branch expansion (by 800) and strong customer acquisition (+2x to 20m). Potential merger with BHAFIN will strengthen the bank's liability profile and further boost return ratios. Maintain Buy with a revised TP of INR2,000 (4.0x Sep'19 BV).

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