Buy IndusInd Bank; target of Rs 1650: JM Financial

JM Financial's research report on IndusInd Bank

IIBs 2QFY18 performance (+25% YoY growth in earnings) came largely in-line with estimates with a slight moderation in loan book growth (+25% YoY). However, outlook for the second half of the year continues to remain strong as vehicle book growth picked up in the last month of the quarter with record disbursements of CV loans in september. CASA ratio crossed 42% driven by government business (which now makes up c15% of the SA book) and kept margins at the 4% mark despite some decline in corporate book yields. With respect to asset quality, exposure to next-28 IBC accounts was fully provided (Rs360mn impact) and minimal worries remain on exposure to top-50 NPL names now. Mgmt believes the worst on MFI portfolio is behind and growth should bounce back in 2HFY18 with negligible incremental impact on P&L. Although no confirmations were given, in our view, BHAFIN merger looks more in sight than before as management continues to state its faith on the MFI business model and immediate synergies post inorganic growth, if it happens.

Outlook

We will review our TP post further clarity on discussions with BHAFIN. We maintain our BUY rating on the stock. IIB is one of our top picks in the Indian banking space.

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